The GST Council is likely to deliver a major liquidity boost to exporters on October 8 by expanding GST refund rules to cover services and heavy machinery, government sources said.
Under the proposed reforms, more than 38,000 export taxpayers will become eligible to claim cash refunds on input taxes paid on services and plant and machinery, directly addressing the long-standing issue of capital being locked up under the indirect tax framework, the sources said.
“Tax paid on services, and tax paid on plant and machinery, can now be refunded through the input tax credit route. The refund on plant and machinery will spread over five years,” one official said. “For an exporter, this is money that was locked inside the tax system and is now available to him as working capital.”
The refund process is also set to change. Under the proposed rules, the system will acknowledge a refund claim within 10 days. If the officer does not act within that period, the acknowledgement will be deemed to have been given.
Ninety percent of the claim will be released automatically based on a risk check, while the remaining amount will be paid after the usual verification. Export invoices will also be matched against bank realisations by the system itself, the sources said.
Separately, the GST Council may change the classification of exports under GST laws. Under the proposed changes, all supplies delivered to foreign clients will qualify as zero-rated exports, meaning exporters will not have to pay tax on such transactions. Under GST laws, all exports of goods and services are classified as zero-rated supplies in principle.
At present, however, many Indian firms bill their overseas clients, or receive payments, through their own foreign branches. “The definition of an export required that the supplier and the recipient not be establishments of the same person, and a supply routed through an exporter’s own branch fell within that description. That condition will be removed,” an official said.
The Council will also classify work done in India on goods belonging to a foreign client as exports, with services performed on such goods attracting nil tax. Currently, Indian units that undertake testing, repair or processing of goods belonging to a foreign client have to pay 18 percent GST on such services.
This will address a major concern of Global Capability Centres (GCCs). GCCs, the Indian units of multinational firms, undertake engineering, product development and testing for their overseas group companies and are paid in foreign exchange.
“If the proposal is crystallised by the government, exporters will be able to unlock such working capital, which can be further utilised to catalyse their business operations and enhance their capabilities. This will not only incentivise exporters but also boost cross-border exports, which would eventually help support the falling rupee,” an tax expert said.
