GST Reforms to Boost India's Foreign Trade in 2023: Key Highlights

The Goods and Services Tax (GST) in India has been a game-changing reform for the nation's economy and is also significantly enhancing India's international trade. To improve the tax system's effectiveness and friendliness to trade, the GST Council has recently implemented several reforms. Based on India trade data, India's exports are expected to reach a new record in the fiscal year 2023–2024, valued at USD 60.87 billion, a sign that the GST reforms are already having a favorable impact on the country's international trade. In this blog, we will understand the key GST reforms that boost India’s foreign trade.

What are GST reforms?

GST reforms are significant to India's Goods and Services Tax (GST) system. The GST is a consumption-based tax introduced in 2017 to substitute a complex web of central and state taxes. The GST Council, a body of central and state government representatives, implements GST reforms. All taxes currently imposed by the central or state governments on the provision of goods or services would be consolidated under the GST.

GST reforms typically aim to improve the GST system's effectiveness, transparency, and trade-friendliness. The following are some GST reform examples:

• Minimizing the GST rate for some goods and services
• Simplifying the processes for GST compliance
• Integrating GST with customs and other tax systems
• Using innovative technology to enhance the GST administration

Why are GST reforms important for foreign trade?

GST reforms are crucial for India's global trade since they can help increase the competitiveness of Indian exports and lower transaction costs for foreign investors. 

For example, lowering GST rates on export-related goods can lower the price of Indian exports to global consumers. Exporting to and importing from India may be made simpler for international businesses by streamlining GST compliance requirements. Reducing paperwork and facilitating quicker goods clearance at customs are two benefits of integrating GST with customs. 

Impact on India's Exports: 

The GST treats exports as zero-rated supplies, meaning the GST rate is zero. If GST is paid at any collection stage for exports from India, an exporter may file a claim. A trader has two options: pay the IGST up front and then request a refund later, or export goods without paying the IGST under a bond or letter.

In each scenario, the exporter must provide the relevant information from the GST invoice in the shipping bill, including the name, GSTIN, address, invoice number, HSN code of the merchandise, and the description, total invoice value, and number of the merchandise.

Impact on India's Imports: 

Under GST, imports are classified as interstate supplies, which are transfers of products between states. The Integrated Commodities and Services Tax (IGST), a destination-based tax, will be assessed in the state where the imported commodities are used and the imported services are obtained. Therefore, the IGST Act's provisions must apply to delivering goods and services during import and export.

India’s Merchandise Trade: 2022–23

Based on India Trade Data, India's overall exports (goods and services combined) are anticipated to reach USD 66.14 billion in March 2023*, representing a decrease of (-) 7.53 percent from March 2022. The total value of imports is projected to be USD 72.18 billion in March 2023*, a decrease of (-) 7.98% from March 2022.

India's entire exports are anticipated to reach new heights, increasing by 13.84 percent over the course of the fiscal years 2022–23 over those in 2021–22 to reach USD 770.18 billion in exports.

In FY 2022–23, merchandise exports reached a record high of USD 447.46 billion, an increase of 6.03% from the previous year's record exports of USD 422.00 billion as per export-import trade data.
Services exports are expected to expand at the highest rate of all exports, with an estimated annual value of USD 322.72 billion and a growth rate of 26.79 percent over FY 2021–22. Understand the latest Port-wise trade data with the exclusive data-driven dashboard of Eximpedia.

Key highlights of the GST reforms to boost India's foreign trade

Smt. Nirmala Sitharaman, Union Minister for Finance and Corporate Affairs, presided over the 52nd meeting of the GST Council. The discussion mentioned a number of significant proposals and conclusions about adjustments to the GST tax rates, trade facilitation initiatives, and streamlining compliance. So these are the major reforms proposed by the central government:

Changes in GST Rates for Goods

1. Millet flour preparation for food: HS Code: 110319
   1. The GST rates for millet-based food preparations have changed.
   2. It will have a 0% GST rate if sold loose and a 5% GST rate if sold pre-packaged.
2. Zari Thread Imitation: HS Code: 56050010
   1. The GST rate for imitation zari threads made of metalized polyester or plastic film is 5%.
   2. The polyester or plastic film that was used will not be refunded.
3. Foreign Vessels: HS Code: 8908
   1. The conversion of foreign-going vessels to coastal runs will be subject to 5% IGST.
   2. For these vessels, a conditional IGST exemption is suggested, provided they convert back to foreign-going vessels within six months.

Other Reforms Related to Goods:

ENA, or Extra Neutral Alcohol: HS Code: 22082092 - ENA is exempt from GST if it is used to make alcoholic beverages for human consumption.

Molasses: HS Code 17031000 - Molasses will now be subject to a 5% GST charge rather than a 28% rate. This will lower the cost of producing cow feed and provide mills with more cash to pay off cane debts owed to sugarcane producers.

Redeemed Spirit for Commercial Use: For rectified spirit used for industrial purposes, a new 8-digit HS code with an 18% GST rate will be developed.

Reforms in GST Rates for Services:

1. Exemptions for Government Services: Services furnished to central/state/UT governments, local authorities, and services like water supply, public health, sanitation, conservancy, solid waste management, slum progress, and upgradation supplied to government authorities will be exempt from GST.
2. Job Work Services for Barley Processing: Job work services for processing barley into malt will have a 5% GST rate, similar to job work associated with food and food products.
3. GST on Bus Transportation Services via ECOs: Bus operators organized as companies may be excluded from spending GST under Section 9(5) of the CGST Act, 2017, for bus transportation services via Electronic Commerce Operators (ECOs).
4. District Mineral Foundation Trusts (DMFT): DMFTs placed by state governments will be considered government authorities and eligible for GST exemptions.
5. GST on Indian Railways: All goods and services supplied by Indian Railways will be taxed under the Forward Charge Mechanism to permit them to avail of the Input Tax Credit (ITC).

Conclusion

So, these are the major GST reforms that have been implemented by the central government. The GST Council is continuously reviewing the GST system and making changes to improve its efficiency and trade-friendliness. India's exports are increasing as a result of the GST changes. The government is committed to further streamlining and improving the trade-friendly GST system. In the upcoming years, this is anticipated to help India reach its ambitious export goals.
Looking for Global trade data? If so, get access to international trade data, export-import trade data, or Indian port data on EximPedia.app. Our export and import data is up-to-date, and it can assist you in making informed decisions about your business. Start your free live demo today!