1 April 2019
INDIA: Domestic Levy Exemption Scheme for Inputs Imported for Export Extended Until March 2020
Input material and capital goods imported into the country under the terms of a number of export promotion schemes are to continue to be exempted from the domestic Integrated Goods and Services Tax (IGST) and Compensation Cess until 31 March 2020. The move represents the extension of an existing incentive scheme, which allows Export Oriented Units (EOUs) and other qualifying businesses to claim exemption from the payment of the aforementioned domestic levies, that was due to expire on 31 March 2019.
Apart from EOUs, businesses importing input material and capital goods under the terms of the following two export-promotion schemes are also qualified for exemptions from IGST and Compensation Cess:
i) The Advance Authorisation Scheme
This exempts imported inputs used in export processing from the payment of a number of import taxes, including Basic Customs Duty, Additional Customs Duty, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, and Transition Product Specific Safeguard Duty.
ii) Export Promotion Capital Goods (EPCG) Scheme
This allows the duty-free import of capital goods for pre-production, production and post-production of exports, including those required for technology upgrades.
These duty-free import schemes were first introduced under the terms of India’s Foreign Trade Policy 2015-20 with the express aim of boosting domestic manufacturing for export. Following the introduction of the new Goods and Services Tax (GST) regime in July 2017, however, goods imported under these duty-free export-promotion schemes also became liable for the payment of domestic levies (with the provision that qualifying export-oriented businesses may be allowed to claim a tax refund at a later stage). Three months later, the government decided to exempt such imports from the payment of IGST and Compensation Cess, albeit for a limited period.
The latest move is seen as a continued bid to support the country’s export-oriented businesses by reducing their domestic tax compliance burden, enabling them to maintain higher levels of operational cash reserves. This is expected to lead to an increased level of overseas input sourcing by India’s manufacturers, which may create opportunities for Hong Kong-based input material suppliers.