AEGAEUM JOURNAL ISSN NO: 0776-3808

A STUDY ON THE IMPACT OF GST ON FOREIGN Dr. Varsha Agarwal1, Kapil Manglani2, Nitesh Agarwal3 & Kaushal Sinhal4 1Assistant professor, management, Centre for Management Studies, Jain (Deemed-to-be University), 2Student, BBA 5TH Semester, Centre for Management Studies, Jain (Deemed-to-be University), India 2Student, BBA 5TH Semester, Centre for Management Studies, Jain (Deemed-to-be University), India 2Student, BBA 5TH Semester, Centre for Management Studies, Jain (Deemed-to-be University), India

ABSTRACT GST is one indirect for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services. GST is a destination based tax which is levied only on value addition at each stage because credits of input paid at procurement of input will be available. Before GST was launched made by the country was 437 US $ BILLION and made were 480 US $ BILLION which resulted in a trade deficit of 43 US $ BILLION whereas after the launch of GST exports made by the country was 478 US $ BILLION and the imports made were 565 US $ BILLION which resulted in a trade deficit of 87 US $ BILLION. So, after the launch of GST there was an increase in the exports made by the country as well as the imports made by the country, but this does not mean that the implementation of GST was successful. There is no doubt that the increase of exports is a good sign for any country but the rate of increase in is much lower than the rate of the increase in imports. So, the trade deficit increased significantly and it became double in just one year. This does not mean that the entire trade deficit increase can be a fault of GST. It is due to many reasons that the trade deficit increased, which includes factors such as poor implementation of GST as there have been many incidents in which the refund expected by exporters where not provided to them and hence, they stopped exporting. So the implementation of GST is a good start even though the 1st year data shows otherwise. But in the long run it will yield success to the country.

KEYWORDS GST (Goods and services tax), ZERO-RATED SUPPLY, FTP (Foreign trade policy), , Export.

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 194 AEGAEUM JOURNAL ISSN NO: 0776-3808

A STUDY ON THE IMPACT OF GST ON FOREIGN TRADE INTRODUCTION GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services. GST is a destination based tax which is levied only on value addition at each stage because credits of input taxes paid at procurement of inputs will be available. Thus, the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all previous stages (Haldia, 2019)

Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries Foreign or International trade means trade between the two or more countries. International trade involves different currencies of different countries and is regulated by laws, rules and regulations of the concerned countries. Thus, International trade is more complex. (Chand, 2015)

During the financial year 2016-17 the exports made by the country was 437 US $ BILLION and the imports made during the financial year was 480 US $ BILLION resulting in a trade deficit of 43 US $ BILLION whereas after the introduction of GST the exports made during the financial year 2017-18 was 478 US $ BILLION and the import made during the financial year was 565 US $ BILLION resulting in a trade deficit of 87 US $ BILLION which is double as compared to the previous year. (Press Release, RBI 2017, 2018)

LITERATURE REVIEW India’s foreign trade policy (FTP) is undergoing huge change under GST. Custom exemption is being replaced by reduced exemptions, limited to basic customs duty exemptions only. This change will result in steep decline of duty benefits under foreign trade policy. Some of the key functions of foreign trade policy are shrinking i.e. Imports exports code number is being replaced by entity’s pan number which will reduce the number of applicant seeking for license. The change will impact Software Technology Parks of India (STPI) scheme as well as the Export Oriented Unit. India services exports which contribute $150 billion to the economy depends on STPI scheme under FTP. Changes in benefits will raise questions around feasibility and relevance of the STPI structures. The export community have to accept all the changes by depending less on FTP schemes. As an impact of new FTP under GST Indian exporters and importers will rely on more of open market forces on the path of international trade. (Tewari, 2017)

Goods or services produced in the country and sold to other countries is termed as EXPORTS whereas goods and services brought to the country by other countries is termed as IMPORTS. Integrated goods and service tax is a tax which is levied on to the supply of goods or services

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 195 AEGAEUM JOURNAL ISSN NO: 0776-3808

which is done in a boundary of the inter-state trade. Introduction of GST have led to improvement in foreign trade as it has reduced tax burdens from individuals by making it single tax system which helps in better international imports and best domestic exports (lathesh, Appanna and Avdani, 2017)

The introduction of goods and services tax have changed the way of businesses done in India. GST have a significant impact on international trade as it have changed the structure of exports and imports . Earlier exports and imports were subject to various direct as well as indirect taxes but the single integrated goods and services tax (IGST) under GST have replaced all the taxes. Imports under GST are treated as inter-state supply. Integrated goods and services tax is levied in the state where imported goods are consumed. Previously transportation of goods by aircraft and inbound shipment was not liable to service tax. Under GST there is no such exemption. Under GST exports are treated as ‘zero rated supplies’ i.e. supplies on which GST rate is fixed zero. If GST is paid at any point by the supplier than it can be claimed for refund later (shira, 2019)

With the GST in existence the exports are expected to increase with the benefits being provided to the exporters and schemes like MEIS and SEIS coming in action will promote exports. With imports there will not be a major difference as most of the features will remain same just there will be a requirement of working capital restructuring. There may be a bit of increase in import with GST as there is provision for refund of duty in this tax regime (Sachdeva, 2017)

The overall impact of GST on holistic picture of exports in the coming years turn out to be accentuating and positive due to the fact that compliance cost will plummet, better functioning of the administrations, streamlining of refund mechanism. However, there is still some grey areas where government needs to be proactive and ensure smooth functioning of the GST in case of exports. With the implementation of GST, India's trade cost structure with major importers in the world is expected to drop by 2-3 % every year in the first 3 years. The major outcome of the GST on Indian imports would be rise in levels of productivity and thereby on productiveness (Sharma, 2017)

Unlike service tax, different rates have been provided for import of services. Valuation norm has been shifted from gross value of service receipts to transaction value. Import of services for personal consumption has been brought under the liability of GST. As far as export of service is concerned, zero rated exports will encourage development of export of services from India. A new concept supply of service has been added in GST regime to tax provision of service where supplier is in India and place of supply is outside India. Now GSTIN would be used for import and export. However, where GSTIN is not available, UIN or PAN may be used as an alternative. On overall basis GST law will prove to be a milestone in the growth and development of import and export of services from India. (Pandey, 2017)

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 196 AEGAEUM JOURNAL ISSN NO: 0776-3808

GST is helpful for the development of Indian economy as well it will be very much helpful in improving the gross domestic product of the country more than two percent. Now the should take final step to pass the GST bill in parliament with removing all hurdles. Tax policies play an important role on the economy through their impact on both efficiency and equity. It is also expected that implementation of GST in the Indian framework will lead to commercial benefits which were untouched by the VAT system and would essentially lead to economic development. (Shailesh, 2016)

A tax system is something that provides flow of income and generates revenues to survive on government spending on public service and infrastructure. Tax policies are important part of every economy. By introduction of GST subsumes all indirect taxes such as sales tax and excise tax and is expected to bring down tax rates in India, while converting the country into a big . The new tax regime is expected to help goods move seamlessly across state borders, curb tax evasion, improve compliance, increase revenues, spur growth, boost exports, and attract investments by improving ease of doing business in India. GST has created an impact on India’s Foreign Trade. GST has changed the way of doing business in India and would have significant impact on international trade of goods through the change in customs duty computation, possible withdrawal of various duty exemptions and change in terms of the foreign trade policy. (Jain, 2017)

Tax policies are important part of every economy as it impacts on both adeptness and impartial. India must practice taxation policies that would maximize its economic competence and reduce any or all hindrance to efficient distribution of resources, capital building and international trade. The legal sovereignty however reduce the cost of production and helps to lead an integrated Indian market making industries more competitive. An understanding of tax system is going to be beneficial for timely implementation of measures to overcome all the issues and avoid potential disruptions they could cause to the business. (Nisa, 2017)

Tax is not implied on exports and on imports as when the goods and services takes place the IGST is imposed. Basic custom duty is also charged on import of goods. Tax endeavor to generate tax revenues for the backbone of government expenditure. Tax revenues have differential impacts on firm of firms in the economy with relatively high burdens on those not getting full offsets. in the developing stage in the field of economy which requires more competitive and efficient in its resources. Revenues from indirect tax is the major source of tax revenues. This study indicates that implementation of a comprehensive GST in India is expected to lead allocation of production this leading to gains in GDP and export (Bery, 2018)

PURPOSE OF RESEARCH There has been an increase in both the exports and imports made by the country after the launch of GST, but the concern is that the trade deficit in just a matter of a year has doubled; one of the

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 197 AEGAEUM JOURNAL ISSN NO: 0776-3808

reasons for it is the launch of GST. So this research is done in order to understand the impact of GST on the foreign trade as well as to understand the reasons for the huge impact.

This research will provide a clear idea regarding the situation of export and import after the launch of GST and hence providing areas where GST has benefited and areas where GST has affected negatively.

RESEARCH PROBLEM A big change occurred on 1st July 2017, when a revolutionary step was taken, that was the launch of GST, but with such a big step comes big changes to the ongoing process.

This kind of action will definitely bring fluctuation in the result and that fluctuation is also visible in the case of foreign trade after the GST period as compared to pre-GST period

RESEARCH OBJECTIVE The objective of this research is to analyze the fluctuation in the foreign trade that has occurred due to the implementation of GST and to analyze the reasons for the change. There are different aspects resulting in the net change in the foreign trade, therefore this research also helps us analyze different parameters showing positive or negative change separately.

RESEARCH METHODOLOGY The research methodology used in this research is descriptive research. Descriptive research can be explained as a statement of affairs as they are at present with the researcher having no control over variable. It is aimed at casting light on current issues or problems through a process of collection of data that enables them to describe the situation more completely than was possible without employing this method. The research conducted required descriptive research as the data being collected for the research purpose was the most important factor in determining whether the implementation of GST has brought any change or not, if yes than positive or negative.

RESEARCH ANALYSIS

FOREIGN TRADE IN 2016-17

According to the press release made by the RBI, the exports made by India prior to GST were 424.89 US $ BILLION and the imports made by India prior to GST were 472.60 US $ BILLION which provided a trade deficit of 47.71 US $ BILLION. The merchandise sector showed a trade deficit of 108.51 US $ BILLION and the service sector showed a trade surplus of 60.8 US $ BILLION hence, providing a net trade deficit of 47.71 US $ BILLION.

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 198 AEGAEUM JOURNAL ISSN NO: 0776-3808

India’s foreign trade for April-March 2016-17 (In US $ billion)

Merchandise Services Merchandise + Services

EXPORTS 275.86 149.03 424.89

IMPORTS 384.37 88.23 472.6

TRADE BALANCE -108.51 60.8 -47.71

RBI PRESS RELEASE, APRIL 2017

FOREIGN TRADE IN 2017-18 According to the press release made by the RBI, the exports made by India post- GST were 478.15 US $ BILLION and the imports made by India post GST were 565.32 US $ BILLION which provided a trade deficit of 87.17 US $ BILLION. The merchandise sector showed a trade deficit of 156.83 US $ BILLION and the service sector showed a trade surplus of 69.66 US $ BILLION hence, providing a net trade deficit of 87.17 US $ BILLION.

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 199 AEGAEUM JOURNAL ISSN NO: 0776-3808

RBI PRESS RELEASE, APRIL 2018 COMPARISION

The export in merchandise sector has shown by 9.78% increase whereas the exports in services sector has increased by 17.63% giving an overall increases of 12.53% but it doesn’t not necessarily mean that the implementation of GST has been fruitful as the imports made by the country has increased by around 19.5% in both the merchandise and service sector resulting in the trade deficit getting almost doubled in just a span of an year and resulting in a 87.17 US $ BILLION deficit. But it does not mean that GST is unsuccessful as in the long term GST is looking as the best option even though the 1st year results of GST was not good but we have to take into consideration the fact that when any new change occurs a bit of chaos, troubles are created and hence a further analysis of GST for 1-2 years is needed to judge whether GST is good or not foreign trade of India.

REASONS FOR THE IMPACT • Increase in exports There has been a 12.53% overall increase in year 2017-18 after the implementation of GST, this is majorly due to internationally competitive provided by the exporters due to the smooth of claiming input tax credit and the availability of input tax credit on services.

• Increase in imports There has been an overall increase of 19.5% in the imports made by the country after the implementation of GST; this is majorly because tax paid during import will be available as a credit under “Import and Sale” model, whereas previously there was no such credit available.

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 200 AEGAEUM JOURNAL ISSN NO: 0776-3808

• Increase in Trade Deficit There has been an increase of trade deficit from 47.71 US $ BILLION to 87.17 US $ BILLION in just a matter of an year, this happened majorly because the implementation of GST resulted in the disruption of local businesses, including exports particularly the small and medium enterprises which is quite evident in gems and jewelry, textiles, and leather sectors.

LIMITATIONS Unavailability of the data for foreign trade for the financial year 18-19 resulted in the research being made on just one year’s data after GST. Being a student also restricted access to certain information which would clarify the stats in a more detailed manner. As most of the information used in the research was secondary hence, the in-depth analysis was not possible. As the data collected for the research is historical, there are chances that results may vary with use of current data i.e. the impact of GST on foreign trade might increase or decrease.

CONCLUSION

From the above information it is clear that implementation of GST had positive impact on the import and export of goods and services. Before implementation of GST import and export were subject to various direct and indirect taxes but GST had subsumed all the direct and indirect taxes imposed on importers and exporters. GST has made taxation system easy for importers and exporters. There is growth of 19.59% on imports and 9.78% on exports post GST during the financial year 2017-2018 which can be considered as impact of GST on import and export of goods and services. The growth percentage can be considered as the positive impact of GST over import and export but it is not as fruitful as it is expected to be, because introduction of GST has led to increase of imports at a higher rate than exports. Because of higher imports the trade deficit of the country got almost double in a year which is not good for the GDP of the country as more imports means more purchases from foreign country and more purchases means more spending which have negative impact on the GDP of the country.

Exports under GST is treated as ZERO-RATED supply which will encourage more exports and in future we can expect more of exports. Increase in exports will directly lead to decrease in trade deficit and will have positive impact over nation’s GDP. Implementation of GST have a positive impact on import and exports and the positive impact is going to increase in future which is great for our country.

FURTHER SCOPE OF STUDY To analyze the other factors due to which the trade deficit has increased significantly in just a span of one year. Our research only considers the data of the 1st year of the implementation of GST and hence there is a further scope to analyze the data of the 2nd year of implementation as it will give more clarity regarding the success or failure of GST, as it takes time for any implementation to show its true effect.

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 201 AEGAEUM JOURNAL ISSN NO: 0776-3808

REFERENCES 1. Bhalla, P (2019). Impact of GST on Exports of Goods & Services in India, shiprocket, Retrieved from https://www.shiprocket.in/blog/gst-impacts-exports-india/ 2. Chand,S (2015). The Meaning and Definition of Foreign Trade or International Trade, yourArticleLibrary, Retrieved from http://www.yourarticlelibrary.com/foreign-trade/the-meaningand- definition-of-foreign-trade-or-international-trade-explained/5972 3. Clear tax (2019). Impact of Goods and Services Tax on Imports and Importers, Retrieved from https://cleartax.in/s/gst-impact-on-import 4. Haldia, A (2017). GST made easy, DELHI: Taxmann 5. India Brand Equity Foundation (2019), FOREIGN TRADE POLICY OF INDIA, Retrieved from https://www.ibef.org/economy/trade-and-external-sector 6. Jain, P (2017). How will Imports be Taxed Under GST?, TaxRaahi, Retrieved from https://www.taxraahi.com/learn/will-imports-taxed-gst/ 7. Jain, P (2017). Impact of GST on import and export, LEGALRAASTA, Retrieved from https://www.legalraasta.com/gst/import-export/ 8. Kodidala,S. P. (2017). Standing Committee Report Summary, PRS legislative research, Retrieved from http://www.prsindia.org/sites/default/files/parliament_or_policy_pdfs/Standing%20Committee%20 Report%20on%20Impact%20of%20GST%20on%20exports.pdf 9. Lendingkart (2018). How Imports and Exports Have Changed in India After GST, Retrieved from https://www.lendingkart.com/blog/how-imports-and-exports-have-changed-in-india-after-gst/ 10. Ministry of commerce and industry (2018). Annual report, Retrieved from https://commerce.gov.in/writereaddata/uploadedfile/MOC_636626711232248483_Annual%20Repo rt%20%202017-18%20English.pdf 11. Nisa, S (2017). The impact of GST on India’s foreign trade, SSRN electronic journal, Retrieved from https://www.researchgate.net/publication/317996841_The_Impact_of_GST_on_India's_Foreign_Tra de 12. Press Information Bureau (2018). India’s Foreign Trade: March 2018, Retrieved from https://pib.gov.in/newsite/PrintRelease.aspx?relid=178671 13. Sachdeva, A (2017). Impact of GST on Import Export Market, tax management India, Retrieved from https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=7629 14. Shira, D (2019). Impact of GST on Imports and Exports in India, India briefing, Retrieved from https://www.india-briefing.com/news/impact-gst-imports-exports-india-14611.html/ 15. Tewari, H (2017). GST impact on foreign trade policy, financial express, Retrieved from https://www.financialexpress.com/opinion/gst-impact-on-foreign-trade-policy-here-is-what-will- bethe-new-normal/776374/

Volume 8, Issue 4, 2020 http://aegaeum.com/ Page No: 202