Institute e-wallet for SMEs, exempt exporters from GST: Traders to govt

Exporters have suggested the idea of instituting an e-wallet mechanism for small and medium enterprises (SMEs) and complete exemption for merchant exporters, who have been hit by an unavailability of working capital in the goods and services tax (GST) regime.

In a meeting with Finance Minister Arun Jaitley on Thursday, the Federation of Indian Export Organisations (FIEO) said the system may be instituted since a significant number of firms are still disproportionately affected by a capital crunch.

"Government may consider introduction of e-wallet for exporters in which, based on the preceding year’s exports and an average GST rate, e-currency is credited to exporters’ accounts. Like a running account, money may be debited from the e-wallet when duty-paid supplies have to be undertaken and the amount may be credited when the proof of export is made available from ICEGATE," FIEO said in a statement to finance ministry officials. 

Exporters were earlier allowed duty-free import of goods used for making products for export. With GST, they have to first pay the duty and later apply for a refund. As a result, their costs have risen by up to 1.25 per cent (freight on board value) since July 1.

The idea had earlier been mooted by traders before the new tax regime was rolled out. Subsequently, it has been shunted back and forth between the ministries of commerce and finance until it fizzled after sustained opposition from the department of revenue, a senior official said.

Also for SMEs, the provisional input tax credit period has been suggested to be increased by six months from the current two months by industry body CII. “This will help cross-matching of invoices through the GSTN portal and also avoid the blockage of working capital for the small players,” said Chandrajit Banerjee, Director-General of CII.

Exporters have also asked for GST exemption against an electronic bond for merchant exporters, who account for over 30 per cent of the nation’s exports. Operating on low margins of 2-4 per cent, many of them have stopped entering into new contracts, which may see exports in the next quarters disrupted, Fieo has said. As a case in point, two months after the roll-out of the GST regime in July, the order books of exporters are said to have taken a hit, with estimates pegging the impact at up to 15 per cent across industries and product categories. According to an assessment by FIEO, the large drop was for export orders that were meant to be delivered until October. Beyond October, this may rise to 20 per cent, as exports during Christmas and New Year may be affected. 

After growing in the single digits in the previous three months, exports in August had risen by 10.29 per cent, up from 3.94 per cent in July. But exporters and economists alike remain sure that the coming months would prove to be the real challenge for merchandise exports.

This may lead to a Rs 65,000-crore worth of exports being stuck by the end of the year, said Ajay Sahai, director-general of FIEO.

That is largely due to the tax refund issues continuing under the GST regime, even after three months of its launch and on expectations of the rupee witnessing a steady climb in the coming months.

Industry bodies have also suggested changes in some of the existing provisions based on the feedback received from producers, traders and consumers. "Such changes will have to be made from time-to-time, based on the actual experience of the implementation of any new and radical scheme," said Ficci President Pankaj Patel.

The Finance Ministry said that the proportion of the problem was being inaccurately depicted and that it was working out a solution to resolve all GST-related issues.

"There are a lot of apprehensions expressed in the media about the problem of blockage of working capital for exporters post- GST. Various figures also being discussed on the blockage of such funds, which are wild estimates. Such media reports are not based on facts," the Finance Ministry had said in a press release.

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