Partial integration of export incentives with GST causes capital crunch

TIRUPUR: Knitwear exporters are feeling the heat of facing working capital crunch after the implementation of Goods and Services Tax system because of the partial integration of export incentives available under Export Promotion Capital Goods scheme (EPCG) and Export Performance Certificate (EPC).

Prior to the implementation of GST, the exporters have been able to import machinery and apparel accessories without payment of any duty under EPCG and EPC. But with the GST roll-out, the exporters are now paying the Integrated Goods and Services Tax (IGST) portion that covers components such as countervailing duty, additional customs duty and special additional duties and then taking the input tax credit. Only the customs duty component is still remaining outside the purview and to be continued under EPCG and EPC.

“It means, huge volumes of working capital get locked for the period till the exporter gets back the IGST portion hitherto was not to be paid upfront,”

pointed out S. Dhananjayan, a senior member of Institute of Chartered Accountants of India and technical consultant to Tirupur Exporters Association. Before the partial integration of incentives, the exporters did not have to pay the entire around 28 % duty on the machinery imported through the EPCG scheme.

  

 

Now, only the customs duty portion that varies from 5 to 10 % alone need not have to be paid with remaining to be paid as IGST and then get the credit back.

Import

Similarly, the exporters were able to import accessories to the tune of 5 % of the company’s total turnover without any duty payment under the EPC to embellish the garments before the GST rollout.

The exporters feel that banks should take cognisance of this revised working capital scenario. “Banks should enhance the working capital limits.

Without that, many small scale exporters will end up facing huge difficulties in cash flow,” said M. Veluswami, exporter and former chairman of Confederation of Indian Industry (Tirupur chapter).

Source:::  The Hindu, dated 26/07/2017.