Pharma exporters urge govt not to withdraw exemptions under AA, EPCG Schemes to align with GST
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Laxmi Yadav, Mumbai
July 07 , 2017
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Pharmaceutical exporters have appealed to the government to reconsider
its decision to withdraw most exemptions on input taxes under existing
export incentive schemes-- Advance Authorisation (AA), Export Promotion
Capital Goods (EPCG) Scheme and Merchandise Export from India Scheme
(MEIS) enabling duty free import of inputs required for export
production.
The exemptions were withdrawn to align them with GST
coming into force from July 1. This will have adverse impact on foreign
trade policy (FTP) schemes. Under AA scheme, 7.5 per cent basic customs
duty (BCD) will be exempted and 18 per cent integrated GST (IGST) will
have to be paid on imports which will be refunded on making exports.
Under EPCG scheme, 10 per cent BCD will be exempted and IGST will have
to be paid on imports of capital goods. MEIS scrips will be used for
payment of only BCD.
Prior to GST, pharma exporters had availed
duty exemption totaling 26.43% per cent including BCD (7.05%), CVD
(12.50%), education cess (2%), higher education cess (1%), SAD (4%)
under AA. Under EPCG scheme, they had enjoyed 28.5 per cent duty
exemption including BCD (10%), CVD (12.50%), education cess (2%), higher
education cess (1%), SAD (4%). They would draw MEIS benefit up to 3 per
cent.
The Directorate General of Foreign Trade (DGFT) issued a
notification containing the above mentioned provisions on June 30 in the
wake of implementation of GST. As per the notification, exemptions will
also be provided wherever penal duties such as anti-dumping, safeguard
and transition product specific safeguard duty are applicable.
All
these changes will affect the liquidity of the exporters and they will
incur interest cost of 3 per cent on the working capital for payment of
IGST on imports for domestic market because the option of using MEIS
scrip for payment of IGST is not available. Their working capital will
be blocked for 3-4 months starting the date of import to date of receipt
of refund against export. This will affect the competitive advantage of
pharma exporters, said DB Modi, director of JB Chemicals and
Pharmaceuticals.
Modi said though GST has been implemented, many
important policy/procedures are not in place creating confusion among
exporters. The government was expected to announce midterm review of the
foreign trade policy on June 30 but it got postponed and is likely to
be announced in September. New all industry drawback rates are not
announced. Refund procedures are not announced. The format of Bond or
Legal Undertaking against which exports are to be made, is not yet
prescribed. New procedures for removal of export goods are not notified.
To
add to these uncertainties, exporters are also facing erosion in their
realizations due to the appreciation of rupee against USD during the
last one year.
He added that exporters also sought clarifications
on certain issues such as in case of a default in fulfillment of export
obligation in respect of goods imported under AA or EPCG schemes,
regularization can be made by payment of customs duties (either in cash
or through duty credit scrips). However, there is no provision to take
input tax credit of such duties under the GST regime. Under the current
dispensation CENVAT Credit is available now on payment of CVD/SAD. When
export order is fulfilled before 30/06/2017 and imports under AA is made
after 01/07/2017 IGST has to be paid. How will the exporter be
compensated, as he may not have factored in the higher IGST in his
calculations on export commitments. Whether GST will be applicable on
sale of MEIS, SEIS Scrips? Under GST Act the definition of territory of
India is widened. In High Sea Sale (HSS) transaction, IGST is attracted
twice - once when importer sells to HSS buyer and again when HSS buyer
clears through customs. Government has committed that 90% of refund will
be paid within 7 days and balance within 60 days. However, interest of
6% payable by the government is triggered only after the expiry of 60
days. There is no clarification on interest to be triggered for the 90%
refund if not paid in 7 days.
Indian Drug Manufacturers'
Association (IDMA) had also written to the finance ministry and commerce
and industry ministries urging them to reconsider the impact of
withdrawing the AA and EPCG Schemes.
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