Exporters in India have always been an important part of the economy, contributing significantly to the country's GDP. The Indian government has been taking various measures to facilitate and promote exports, one such measure is the Merchant Export Scheme. Recently, the GST Council announced some changes in the GST rate applicable to exports made under this scheme. In this article, we will take a detailed look at the Merchant Export Scheme and the changes made to the GST rate applicable to it.
The Merchant Export Scheme is a scheme introduced by the Indian government to promote exports by facilitating the purchase of goods from the domestic market by a merchant exporter, who then exports these goods. Under this scheme, the merchant exporter can purchase goods from the domestic market without paying any tax. The goods are then exported by the merchant exporter after fulfilling the export formalities.
The Merchant Export Scheme is beneficial for small and medium enterprises (SMEs) and startup founders who do not have the resources to manufacture or produce goods for export. They can purchase the goods from the domestic market at a lower cost and export them, thus earning a profit.
Initially, the GST rate applicable to the Merchant Export Scheme was 0.1%. However, in the 28th GST Council Meeting held on 21st July 2018, it was decided to reduce the GST rate applicable to exports made under the Merchant Export Scheme to 0.05%. This decision was taken to provide relief to the exporters who were facing working capital issues due to the high GST rate. The reduced rate of 0.05% came into effect from 1st January 2019.
However, this rate reduction was not applicable to all exports made under the Merchant Export Scheme. The reduced rate of 0.05% was applicable only if the goods were first purchased by the merchant exporter from a registered supplier and then exported within a period of 90 days from the date of issue of the tax invoice. If the goods were not exported within this period, the GST rate applicable would be 18%.
The reduction in the GST rate applicable to exports made under the Merchant Export Scheme is a welcome relief for SMEs and startup founders who are looking to export goods from India. The reduced rate will help in reducing the working capital requirement for exporters and will also increase the profit margins. Moreover, the fact that this reduced rate is applicable only if the goods are first purchased by the merchant exporter from a registered supplier and then exported within a period of 90 days will ensure that the scheme is not misused for any fraudulent activity.
However, it is important to note that the Merchant Export Scheme is not the only scheme available for SMEs and startup founders looking to export goods from India. There are other schemes such as the Export Promotion Capital Goods (EPCG) Scheme and the Duty-Free Import Authorization (DFIA) Scheme, which offer various benefits to exporters. SMEs and startup founders should carefully evaluate all the available schemes and choose the one that best meets their requirements.
The Merchant Export Scheme is a beneficial scheme introduced by the Indian government to promote exports from India. The recent reduction in the GST rate applicable to exports made under this scheme is a welcome relief for exporters, especially SMEs and startup founders. The reduced rate will help in reducing the working capital requirement for exporters and will also increase the profit margins. However, exporters should ensure that they comply with all the rules and regulations of the scheme, and also explore other available schemes to choose the one that best meets their requirements.
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