Export and Zero-Rated Supply: Taxation and Compliance Requirements

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Published Date:  17-12-2023   Author:   amitha-shet
captainbiz export and zero rated supply taxation and compliance requirements

Introduction

Exporting goods and services through different channels has its own set of rules to be followed. When these goods and services are claimed as zero-rated, it means that those goods and services are exempted from paying the tax. The taxation for those goods and the compliance requirements for those goods and services are different.

Here are some of the key factors that help you understand the fundamental concepts regarding what rules the export goods and services follow when it comes to zero rate supply and what are the different compliance requirements regarding that as well.

Zero-rated supply of goods and services

In simpler words, zero rate supply of goods and services is the supply of these products which are exempted from paying tax. The GST on these products doesn’t apply to the supplier. For all the products upon which the zero-rated tax is applied, they can claim a refund as well through ITC. The zero-rated tax can apply to:

  • Export of goods 
  • Export of services 
  • Supply of goods 
  • Supply of services 

One of the main objectives of zero-rated supply is to make a positive impact on the global market, increase productivity, and encourage small and medium-sized businesses.

Any of the businesses or companies who are given a zero-rated supply of goods and services dare to ask or claim a refund on certain products. The supplier can have two conditions for claiming the refund. These can be:

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  • The refund the supplier is willing to claim has to be accumulated to the ITC and the supplier is eligible to export or supply without paying any IGST.
  • If the IGST is paid by the supplier, he can claim a refund and can export or supply by paying IGST. 

Process of refund for the goods that are exported: 

Following are the steps that are followed when any goods are exported. These are:

  • The exporter is supposed to file an application claiming for a refund and that has to be done within two years from the date of export. 
  • There should be a proper document or statement maintained that mentions all the details regarding the shipping bill, export invoices, etc
  • A copy of the shipping bill has to be submitted which has all the details on it. 
  • There should be a letter or certificate that claims that there is no prosecution pending against the one who is claiming a refund.

It takes around 60 days for the refund to proceed and the refund is supposed to be directly transferred to the bank account of the exporter.

Also Read: Fundamentals Of Place Of Supply For Exports Of Goods And Services

Export incentives and benefits

Incentives, in simpler words, are explained as any gesture or acknowledgment of the efforts of the exporter for bringing in foreign currency, foreign trade, and making good terms globally.

This act is done for the exporters by the government so that they can secure foreign markets. The government also provides export incentives to keep the competition of domestic products in the global market.

There are different types of export incentives:

  • Low-cost loans
  • Export subsidies 
  • Direct payments 
  • No tax is applied on profit made from the exported goods
  • Discounts
  • Cash backs

The export incentives work quite well by making domestic exports competitive. They do that by collecting less tax so that the demand for domestic products remains wider. Hence, the domestic consumers end up paying more than the foreign consumers. 

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The export incentives are a way of encouraging the employees to do better than before. It also helps in recognizing which employee is bringing more business to the company. Hence, it builds a certain competition in the workplace but that is also somehow beneficial for the company as well. 

While there are benefits of export incentives, there are some disadvantages as well. It creates a kind of competition within the working environment, the same level of employees may encounter trust issues with incentives given to the fellow member for the same level of hard work.

There are two different categories of incentives. These are:

  1. Financial incentives; which is given in the form of discounts, and cash backs. 
  2. Non-financial incentives; which is given in the form of certificates, flexible work hours, rewards, and bonuses.

Also Read: Export Incentives and Refunds: Linkage with Place of Supply and Compliance

Export documentation and invoicing

Any document which has all the details of the export goods and services is called an export document. Details as in; good type, service type, shipping bill, vessel detail, port detail, date and day of export, country in which the goods and services are exported. 

An export invoice is another category of document that is under the custody of the seller. The seller uses this document where all the details regarding the good or service that is being exported are mentioned. 

The information can be of the product type, its weight and height, the size, value, and number. Later on, this similar document is used by the customs office where they use it to calculate customs duties and taxes. 

There are different invoice types. These are: 

  1. Commercial invoice: It contains all the relevant information regarding documents that are needed for international trade. It contains information such as name, address, billing number, contract number, quality of the goods, quantity, performance invoice number, value, contract number, and advance payment details. 
  2. Performa invoice: This document contains information that the seller has to provide to the foreign client regarding all the information about the goods in quality, quantity, value, weight, and type of the product. 
  3. Consular invoice: This document holds information regarding the record of the shipments that are being made in history. It helps facilitate duties in the importer’s country and helps expedite the process of delivery in the country where the goods are supposed to be exported. 
  4. Customs invoice: This document provides information about customs import value at the port of destination. 
  5. Legalised invoice: This document is mostly used in Eastern countries. This document is received by the country where the goods are imported and then it is signed and attested. 

Different categories of international exports: 

There are different categories of international exports discussed as direct export, indirect export, and merchant export. A direct export is any category where you are the supplier and you are directly supplying the goods or services to your customer. 

  • The direct connection of yours with your client in such a way that he is directly purchasing from you and you are directly sending it to him is called a direct export. 
  • When this exchange of information about goods and services is done via any middle agent or distributor then it’s called an indirect export. 
  • In the merchant category, purchasing goods from local clients and having the potential of selling those goods and services in the international market is known as merchant export. 

GST refunds for exports

The refund process requires taxpayers to follow rules. The one who is willing to get GST refunds for exports should: 

  1. Log in to the official portal of the GST website>services>refunds>application form. 
  2. Fill up the refund application form which asks you questions related to the information about the goods and the exporter, the nature of the business, the date of issue, the value of export, income tax paid, investment, and capital expenditure.

With the help of proper documentation, providing relevant information, and following the set of rules restricted by the organisation, the process seems easy of getting a refund on the exported goods. 

Compliance with export regulations 

The main phenomena of this regulation help you witness an overall control on the process of exports. You get to witness it from the start till the end. The rules are set not only on the national but on the international level as well. 

Therefore, for a better understanding of the concept, export compliance is any act where the exporter complies with the set of rules that apply to all the exporting goods and services. 

It’s understandable that when a company or business is exporting goods to an international level, they are supposed to comply with the rules that are set by the organisation. Export compliance is helpful in the protection of trade. Similarly, trade compliance holds all the process details of the organisation. It includes import and export controls, import compliance, and export compliance.

Conclusion 

The goods and services that are being exported have their own rules and regulations when it comes to exporting them on the zero-rated supply.

International export helps you achieve recognition globally and it also helps you expand your business in various forms. You should have the potential to sell your services and goods. Export invoices play a great role in keeping a check on all the information regarding business and exporters.

Also Read: How Has GST Made It Easier For Businesses To Export Their Goods And Services?

FAQs:

Q1. What is zero rate supply?

The entire range of products supplied is exempted from paying tax on those particular products. Therefore, the easiest way to explain zero rates supply is the supply of products upon which the tax is not applicable. 

Q2. What is the meaning of zero-rated tax?

Zero rates tax when applied to any product, shows that the product is taxable but at zero%. The customer doesn’t have to pay VAT for that particular product upon which the zero rates tax is applied. 

Q3. Give any three examples of zero-rated exports.

Most of the products that have zero rates have their tax applied to them as zero. Often these products are very necessary as well. Such products are beverages, sanitary, medicines, water, sewage, and food items. 

Q4. What are negative exports?

A trade deficit when given to any country brings negative exports. This means that any such company that is doing more imports than exports is considered as a negative export. 

Q5. What is export failure?

When the financial health of any company or business deteriorates, the company encounters export failure. The reason why export failure occurs can be when the production of the product is low, when the export process is not unique or demanding, when the domestic revenue is low, and when the businesses exit domestic markets. All these issues can bring export failure to any company or business. These reasons can lead to export failure and this makes it very difficult for a company to retain its previous position. 

Q6. What are the disadvantages of exporting?

While there are a lot of pros of exporting, you cannot deny the cons of exporting as well. You may encounter cultural hurdles, currency issues, exchange rate issues, production issues (when it comes to bulk production), supply chain issues, and political disruptions as well. Apart from these, if the production is slow and the demand is high, there are chances the order cannot be delivered on time and this way, it can cause a bad impression on the client. There are chances this way the exporter may lose the client. 

All these issues may have a bad influence on exporting goods to companies and businesses but it should be kept in mind that there are undeniable pros as well. 

Q7. How will you define a VAT supply?

Any tax on the transactions is known as a VAT supply. You cannot say that it’s a category of tax on income profits or capital gains but the tax is applicable when any goods or services are consumed. 

Q8. Who pays VAT?

All the purchasers are supposed to pay VAT (value-added tax). All types of businesses collect the tax in all the production stages. It is then collectively counted over the various stages of production of the goods that are planned to be exported. 

Q9. How many types of trade barriers are there?

In particular, there are four types of barriers. These are:

  • Border barrier; where there can be any uncertainty regarding the exports on the border. 
  • Technical barrier; where there can be any issue that occurs regarding the technicality while exporting goods.
  • Government influence barrier; where there can be any issue occurring from the government side. 
  • Business environment barrier; where the issue can arise from within the business dealing or the company. 

Q10. What is the export department?

It’s any department that is responsible for all the needs and requirements related to exporting goods and services. 

All the relevant information regarding the exporting goods and services such as documents, logistics, vessel information, port, and the country to which the export is being made, can be found through this department.

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Amitha Shet

Amitha is a creative enthusiast, which gets her into educating the world about things she comprehends. Finance, business, and digital transformation are the topics that she is profoundly interested in so that she can make things simpler for the audience. She is currently a content strategist for a fintech company. She holds a Bachelor of Engineering in Civil Engineering, although finance is a niche that piques her interest to not just educate but to invest and gain experience.

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