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

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Published Date:  17-12-2023   Author:   amitha-shet
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Introduction

Export incentives are a gateway to bringing economic stability as it’s a gesture for small or medium-sized businesses to cater to the cost they have to give to do export. Let’s get to know the linkage between place of supply and compliance.

The linkage between export incentives and place of supply

An export incentive is any benefit that is provided by the government to exporters who conduct cross-border trade. This favour is given to the exporters as they bring more business and foreign currency to their homes.

To acknowledge their efforts, hard work, and conscience, the government offers them a few incentives so that they can compensate for the cost that they have paid in the process of exporting goods.

The categories of export incentives can be provisions that will help cover loans, low-cost loans (credit facilities), tax concessions, and subsidies that help in lowering export prices.

Who implements export incentives?

In most cases, these export incentives are implemented by the DGFT under the Commerce and Industrial Ministry in India.

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If any country conducts export incentives, that can play unfair to another country as a trade practice, and that can become a reason for the dispute. If any such condition appears, it’s the WTO that looks after the aspect and resolves any such issue.

Place of supply is explained as a place where the goods that are being exported, are received. Export incentives are favours done by the government to acknowledge the efforts of the companies/businesses who are exporting goods so that they can compensate for the costs they had to pay for the export process.

The linkage between these two is the export incentives given to the place where the goods are being /received. This can also be a category of a favor done to any company or business to export goods in huge quantities or bring foreign trade into the country.

Impact of place of supply on export refunds

Certain steps need to be followed when there is a refund for exported goods. It is suggested to fill a form where the person/ company who wants to refund, provides complete and proper information. It includes export numbers, export data, investment details, and income tax details. This form holds utmost importance and once it’s submitted it cannot be edited or returned. Following are the two steps that are followed when there is a refund for the exported goods. It includes:

  • Fill up the form by going to the portal GST, go to the services tab>refund>application form. 
  • Fill in the details that are asked in the form for example; nature of business, date of issue, etc

When it comes to what impact export refunds have on the place of supply, it has a different scenario under GST. The exports under GST are considered as zero rate supply. 

The impact it holds says about the set of rules that need to be addressed. If refunds are taking place outside of India, the following rules are asked to be followed/answered:

These are: 

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  • The service provider should be available in India
  • The service recipient should be outside of India
  • The place of supply has to be outside of India
  • The payment mode should be a convertible foreign exchange and if not then, it should be in Indian rupees. 
  • As per the GST, the service provider and the recipient shouldn’t be a distinct person.

Apart from this, there are certain duties charged when the place of supply is different for export refunds. These are:

  1. Custom duty
  2. Welfare surcharge
  3. IGST at 18%

The procedure of refund for exported goods and services includes:

  • The accumulated input tax credit should be refunded, it’s generally not utilised. 
  • The IGST paid on exports has to be refunded. It cannot be refunded on the following conditions:
  1. When the goods are exported out of India, they are subjected to export duty. 
  2. If there is a drawback claimed for the paid taxes. 
  3. Deemed exports 
  4. Exporters of goods on which concessional tax is paid. 
  5. IGST is exempted from designated areas.

Also Read: Place Of Supply In GST For Goods Exports: Shipping Destination And Customs Clearance

Compliance requirements for availing export incentives and refunds 

The process is different for availing of export incentives and refunds. It includes:

  1. The duty drawbacks refer to custom duties and central excise. 
  2. Excise duty
  3. Duty remission scheme 
  4. Advanced licence 
  5. Sale tax exemption
  6. Claim for rail freight rebate 
  7. Claim for air freight assistance 

Maximising export benefits through strategic planning

Exporting is an exceptional way of changing the growth perspective of your country, and its economic stability and strengthening foreign relationships.

All those businesses that foster export strategy tend to build a better economy, grow faster, and increase business. There are some of the fundamentals that you must follow to maximise export through strategies that need implementation. These are:

  • Make exporting a part of your overall business strategy

Your export strategy shouldn’t be something that is repeated and copied by every other venture and business. It should be different and that is how you can make a difference.

  • Carefully assess each market you are planning to enter into

You need to gather relevant information regarding the markets you are planning to enter. Learn the demographics, location, common interests of people, growth of the market, demand and supply, competing bodies, barriers, and restrictions.

  • Start with easier and smaller markets

It’s wise to choose small markets or medium-sized ones. It’s because you can better learn the exporting criteria on them and once you learn and ace the concept, you can visit greater markets as well.

  • Do your research

Conduct proper research about the export, the product, currency and visit multiple websites. It’s important to know what works in one country may not be followed in the other one.

  • Once you get done with the research, visit the country

Travel and learn about the people, their currency, and much more about the place where you would be exporting your goods. You can learn a lot about their buying strategy once you visit the place. Buy the same things from them so that you can have an idea about the pricing and the value of a particular thing, attend seminars and trade fairs to educate yourself, and learn local customs.

  • Seek aid

Seek help from accounting firms or consultants if you are willing to expand your business or offer your services to the foreign world. It’s important to stay up to date with the trend and to follow the rules as well. These consultants can guide you better.

  • Check the said prices

It’s really important to study the currency differences. Thoroughly keep a check on your price list. Keep an edge while you do the costing. It’s because you have to keep in mind all the expenses including logistics packaging etc.

  • Timing

You need to do extensive research when you are planning to export your goods and services to any country. In some places your goods when exported, might be considered as outdated whereas in other countries it can be considered as a plus. Timing is really important when it comes to exporting goods and commodities.

  • Don’t go for a lot of government resources 

Don’t consider it an opportunity or benefit when governing bodies offer you resources or help so that you can boost your export sales or business. It will not empower or make your efforts prominent but will significantly involve the help of the government as well. You will not be the sole winner.

Streamlining export processes for compliance and incentives

The following are the factors to be kept in mind for streamlining export for compliance and incentives:

  1. Legal adherence and compliance are responsible for overseeing all the businesses that are adhering to the rules and are following them strictly. Compliance assures that all businesses are acting upon it. 
  2. Risk mitigation, once you adhere to the rules of compliance, there are greater chances you minimise the loss, supply chain mismanagement, shipment delays, and other such factors. 
  3. Market accessibility and compliance play a great role in establishing relationships between markets and access to these markets. 
  4. Reputation management, for better relationships, is suggested to perform ethical practices and compliance to contribute to better understanding and building trust. 
  5. Consequences of noncompliance, and trade compliance violation occur when any company/business/entity unfollows or breaches the rules and violates the regulations. 
  6. Financial implications and violation of rules can lead to fines and penalties imposed by the governing bodies. 
  7. Legal ramifications, noncompliance leads to legal actions and disputes in the trade. 
  8. Reputational damage and noncompliance play a big role in reputational damage. It also tarnishes trust as well. 
  9. Operational disruption, custom delays, rejection in shipments, held goods, distorted supply chain management, logistic issues, and revenue loss.
  10. Market exclusion, businesses risk exclusion from markets which ends up limiting their growth and market access.

Conclusion

Incentives are a great way of channelling business through successful exports and imports. It helps cater to different problems and brings a positive impact on the overall stability of the business and the economy too. Certain rules and regulations need to be followed when there is a refund policy with the export goods.

The blog holds all ten relevant pieces of information regarding the dos and don’ts, the law enforcement, the steps that need to be followed when it comes to export incentives, and the link it makes between compliance and place of supply.

Also Read: Place Of Supply In Cross Border E-Commerce Exports: Regulatory Framework And Compliance

FAQs 

Q1. Why are incentives important for producing more goods and services?

Incentives are a great way of shaping the economic welfare of the country. It is a gesture from the governing bodies to the exporters. The favour these governing bodies do to the locals is by decreasing the prices of the products.

When the prices get reduced, many people buy it. Hence, these incentives are a powerful tool in bringing more goods and services to the home. 

Q2. What are the incentives for export?

The incentives for export include:

  • Tax exemption on various products 
  • Export subsidies
  • Direct payments 
  • Low-cost loans

Q3. What is the value of export incentives?

The value of export incentives depends on the resulting exchange rate. It’s fair to say if the exchange rate is higher, it increases the value of the export incentives automatically. 

Export incentives also help in making cross-border trade beneficial. 

Q4. How do countries benefit from exports?

Import and export make a huge contribution to shaping the well-being of the country’s economic growth. When exports increase from imports, a country undergoes a trade surplus. Hence, exports are a great way of providing benefits to your country. 

Q5. What are the classifications of incentives?

The incentives are categorised into three forms that are applicable on regional, national, supranational, and local levels. These categories are:

  • Fiscal incentives; which include reduced taxes on rates and holiday taxes 
  • Financial incentives; which include grants and loan
  • Others; such as regulatory concessions, market preferences, and subsidised infrastructure. 

Q6. What are the incentives to attract foreign investors?

Incentives are a great way of introducing grants and subsidies. This way it will be helpful to provide support investment to certain regions. These incentives to attract foreign investors include: 

  • Reduced tariffs
  • Tax holidays 
  • Certain taxes will be exempted for them 

Q7. What motivates investors to invest more?

The biggest motivation for investors to invest their money into something is the hope and surety for higher returns than expected. 

Therefore these companies play a pivotal role in creating an impact that they can turn the tables and bring potential to create high financial returns. 

Q8. What is the most common type of incentive system?

The most common category of incentive system is an unexpected increase in the salary. It’s one of the most practised categories of financial incentives which is quite fruitful as it motivates employees to do better than before. 

Q9. What is an export checklist?

The export checklist enables you to access the overall ongoing progress of the exporting initiative. Hence, it’s important and recommended to check if the export you are doing is viable and carefully conduct a SWOT analysis for better results. 

Q10. What is an example of a negative incentive?

It’s kind of a penalty or punishment that is given to any employee as a result of violating any rules or regulations and by not abiding the conditions set. Penalties, strikes, or people paying money for their unkind gestures or conduct are examples of explaining a negative incentive.

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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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