In India, you are eligible to apply for GST refund if you are an exporter of goods or services, or a person making supplies of goods or services to a special economic zone (SEZ) developer and units—these supplies are called ‘zero-rated supply’ for GST purposes. Zero rating of a particular supply effectively makes the entire supply chain tax-free, i.e. no burden of GST either on the input side or output side. The whole spirit of zero rating is to popularise Indian goods and services in the international market by ensuring that taxes do not get added to the cost of exports. This article aims to discuss various aspects of these refunds under GST and the plight of exporters.
GST was not launched with the intent to unintentionally offer too many procedural glitches and complex formulae to arrive at tax benefits, rather it was to support tax-free exports. Simplification has undoubtedly happened, but whether or not for the whole exporter community is the question. One needs to understand the plight of small-scale exporters, who do not want to avail of paid professionals to get tax refunds. Many a times, an exporter is bound to work on wafer-thin margins, and meeting of working capital commitments is the priority for him to continue exports. There are more such who were impacted by the delayed processing of GST refunds in the initial few months of GST implementation.
Several trade bodies and chambers had approached the government and highlighted the risk of declining exports, due to working capital related issues. The in-time response and correction measures from the government prevented further fall, and we witnessed a rebound of exports in November 2017, with a rally of refunds being expedited for disposal.
Refund of taxes is not something new that GST has made known, but with the merger of multiple taxes in GST, it has made it uniform from the timing and authority interface standpoint. The broad and obvious distinction amongst refund aspirants is one being a supplier of goods (tangibles) and another being a supplier of services (intangibles). You now get a uniform period of two years to file a refund claim in GST. The law also requires that 90% of the refunds claimed should be provisionally granted within seven days of submission of application, and 100% should be granted within two months.
What has really changed, or is expected (more) is, that the accepted norm of hard copy documentation should be discontinued. One of the most touted features of GST is electronic filings, and thus taxpayers should not be asked to visit tax offices for submission of GST refund claims. Preliminary queries regarding documents and eligibility can also be sought over an electronic response system.
However, contrary to this runs a recent press release issued by the Central Board of Indirect Taxes and Customs (CBIC), which states that mere online submission is not sufficient and CBIC has requested all the claimants to furnish a copy of the application, along with all supporting documents, to the jurisdictional tax office. This has made the refund process partly electronic and partly manual. We hope this is an interim measure only to expedite the processing of claims for the exporter community, and once the systems are up and running, digital filing will become the new norm, and there will not be any or less requirements of interface between taxman and taxpayer. The income tax refunds are a proven example in this space, where one need not to pay a visit to the tax office for submission of refund claims.
The government has organised two ‘refund fortnight’ drives and claims to have disposed of over `41,000 crore refund claims from GST-payers. This could largely involve taxes paid by exporters in the initial months of GST implementation, when filing of the letter of undertaking (LUT, a document required to be executed before export, to claim tax-free exports) was at its odds. The government almost came up with a rescue package to the exporters, and prevented them from being debt-ridden of interest cost to borrow working capital. Such a great support was extended to the exporters that the commonly observed mistakes in refund claims were publicly informed by the taxman to avoid piling of claims for the same problems. The exporting community was requested to take benefit of the refund fortnight and wholeheartedly come forward to get their errors rectified to enable sanction of refunds.
Sizeable changes are happening across territories, and information technology has changed the way businesses collect, record and transmit data, the way they pay their taxes, and the way tax administrators communicate with the taxpayers. Tax reporting requirements in India are no more offline. Applying a tax refund is not a mandatory tax compliance, but a ‘right’, which is equally or even more important than the compliance itself. The exercise of this right involves a great deal of time and efforts, and that is why we consider the processes for claiming a VAT refund, in a post-filing index, in our annual joint study (called Paying Taxes) which we, at PwC, do with the World Bank every year.
Tax collection and refund payments are based on the principle of reciprocity, i.e. the administrator expects the taxpayers to pay the right taxes, and also in return the same taxpayer expects the administrator to refund the taxes, as applicable, in accordance with the law. Furthermore, if the law provides for provisional grant of 90% refund, with coexistence of provisions to recover refund incorrectly granted, then there should not be a case for not following it.
CBIC has done a great deal of work to observe special refund drives and fortnights on an all-India basis, which even required mobilisation of additional staff and infrastructure. The government is clearly indicating its assurance to the exporting community, and its keenness to sanction all eligible refunds at the earliest. Yet a shift is required from interim solutions to final measures that we see through the lens of legislation, followed by and implemented with a less indulgence in processes galore.
(Preetam Singh, assistant manager, PwC, GST and Indirect Taxes, contributed to this article.)