Impact of Goods and Services Tax on Imports and Importers

Abhishek Kumar

30 Mar, 2024

With the implementation of goods and service tax, there is a unified and singular tax system. The economy of the nation depends on the import in many ways. In a global economy, for the success and growth of the countries, imports are vital. The demands of the consumers, supporting the industries, improving and strengthening international relationships, etc., can all be done through imports. In the year 2022, India imported approximately 723.35 billion worth of goods. With the continuous increase in imports, international trade has also significantly increased, along with the importance of understanding the implications of taxes on imported goods. It is important for the importers to comprehend the GSTs that are applicable to the imported goods. Since the adoption of GST in the Indian economy, trade has grown significantly. Exports are now more comfortable as the taxes are low at all levels, and the same is true with imports.

What is Import?

The act of importing involves bringing goods or services into a country from somewhere else, usually for commercial or personal purposes. These goods or services could be tangible items like furniture, supplies, technology, or clothing, or they could be immaterial, like software or services.

Bringing commodities into India from abroad is referred to as importing, according to the IGST (Integrated Commodities and Services) Act of 2017. As a result, all imports are viewed as interstate supplies. IGST and any other applicable customs taxes are charged on all imported goods. The IGST Act 2017 defines the importation of services as the delivery of a service by a supplier who is outside the firm, but the recipient of the services is located in India, and the site at which the service is supplied is also located inside the country’s boundaries.

Imports under Goods and Services Tax (GST)

• Import to be considered as Interstate Supply: The imports in India will be subject to integrated goods and services tax, which is IGST because the imports will be recognized as interstate supplies under the model GST law. The import will also be subjected to other surcharges and BCD as well.
• Import of Services: The person who will receive the services will be liable to pay the taxes if the service provider is an individual who is living outside of India. The provision of the current reverse charge is also the same as this. The individual who receives the services will have to pay the tax and also file a return for the same.
• Before the implementation of the GST, there was no credit present on the imports. With the GST system, in fact, the tax that is paid during the import will now be accessible in the form of credit under the Import and sale model of GST. Similarly, another new concept of Special Additional Duty will also be introduced now after compliance with specific conditions.
• Current Exemption will be withdrawn: It is expected that several exemption notifications received under the current customs import tax will be examined, withdrawn, or converted into a compensation scheme. This could end up in changes to the export-linked duty exemption schemes under the FTP, limiting the duty exemptions to the suspension of BCD payments while possibly eliminating IGST exemptions.
• Transaction Value-based Valuation Principal: For the purpose of assessing GST, the model GST law has taken the transaction value-based assessment principle from the current customs law. This will have an impact when determining tax, which is due to Countervailing Duty (CVD) is currently calculated using the MRP valuation principle. The new system will be based on IGST, which includes Countervailing Duty (CVD) on transaction value. Reorganizing the working capital can be necessary. This can reveal the service provider’s margin, which is currently covered.

Special Additional Duty (SAD) and Countervailing Duty (CVD) will both be included as stated in the model GST law. Only input tax credit on IGST can be availed; the customs duties will not be counted in the same. When the businesses often deal in imports or the business is specifically merely for imports, it is advised to have import trackers. At the end of the year, this tracker can then be used to compare the details in GSTR 2B as well as ICEGATE. The concept of reverse charge will be used to pay the goods and services tax on imports of services. Hence, the person who receives the services in India will be liable to pay the tax. After the reverse charge basis is used to pay the GST, the credit can be availed.

Input Tax Credits and Imports

The GST Act includes an input tax credit mechanism to lower the burden of the amount of taxes that merchants, dealers and others have to pay. It will also apply to the imports of goods. When the sale of commodities takes place on the imported goods, the GST can be deducted, which was paid on the import as per input tax credit.

Positive Impacts of GST on Import and Importers

 The implementation of the GST tax system has resulted in many positive impacts on the import and importers in India. The GST has made the tax implications simpler and easier and also provides numerous benefits that can help the import industry as well as importers. Some of the positive impacts of GST on imports and importers are:

1. Taxes are streamlined: The streamlining of taxes is one of the most important positive impacts of GST on imports. Earlier, the tax system was complex in comparison to the present tax system as GST is a comprehensive tax system, where all the taxes are unified into one singular tax. This has made it very simple and easy for the importers to comply with the tax rules and regulations in India. As the imports are considered interstate supplies, the importers only have to understand and comply with the IGST rules, which are easier than before for the importers. 
2. Competition is enhanced in the market: Before the GST system¹, one of the main issues faced by the importers was the cascading effects of taxes. Due to this effect, the importers were often left with goods at high cost. As there were many taxes which were imposed on the imported goods, the goods would end up more costly. With GST, this cascading effect has been minimized, and the input tax credit can be used effortlessly in different stages of supply. These concepts have reduced the tax burden of the importer and have imported more competitively in both international and domestic markets in the world. The importers can now import raw materials at lower prices, and this will also benefit the industries that are in import.
3. International trade is boosted: International trade obstacles have been decreased as a result of the implementation of GST. Importers can now enter worldwide markets with lower tax obstacles, encouraging them to increase their import operations. Trade relations have improved as a result, and transactions between businesses across borders have expanded. A more conducive environment for international trade has been created by the revamped tax structure and lower import tax rates.

Conclusion

The import of products and services has benefited greatly from the introduction of the GST. The GST tax system has lowered individual burdens and created a single tax structure that promotes better international imports. Due to GST, there is now more transparency in the tax system.

Read our Article: Types of GST- SGST, CGST, and IGST

Frequently Asked Questions

1. https://www.gst.gov.in/