Since exports under GST would be zero rated, this would give a competitive edge to textile exports from India which is facing a strong competition from Bangladesh, Pakistan etc. Hence, integrated textile companies should see this as an opportunity, as the advent of GST will spur the textile sector with major capital investments bringing the cost of capital down.
Drawback facility may become redundant – With Input tax credit chain becoming more transparent and integrated, the tax credit for exporters will become easier and full credit of taxes can be claimed; and the duty drawback scheme, which aims to provide credit of taxes will lose relevance under GST. For the exporters, where the current duty drawback rates are lower than the incidence of taxes on inputs, they will benefit under GST due to improved transparency on the level of taxes under GST. Conversely, the sectors, where the drawback rates are higher than the actual incidence of taxes on inputs will face challenge on profitability.
The imported goods are levied with a Basic Customs Duty (BCD) on the assessable value. On the value thus arrived (after adding the BCD) an additional duty or Countervailing Duty (CVD), equivalent to the excise duty on like products (to countervail the same) is levied. Further an Additional SAD of 4% is charged to countervail the VAT in India. A cess of 3% is charged on BCD & CVD. In addition, other duties like anti-dumping, 12 safeguard duties are applicable in specific cases. The duties normally are advalorem, but in some cases even specific duties are applicable. In GST, except BCD, other duties like CVD, SAD will be replaced by IGST and Input tax credit of such IGST will be available to the importer, effectively lowering the tax burden on the ultimate customer.