No Automated IGST Refunds on Pan Masala, Tobacco from October 1, 2023

No Automated IGST Refunds on Pan Masala, Tobacco from October 1, 2023

According to the letter on July 31, exporters of certain goods must present their reimbursement requests to jurisdictional tax authorities for clearance.

The finance ministry has said that the automatic refund of Integrated GST (IGST) on the export of pan masala, tobacco, and related goods would be limited starting on October 1 to reduce tax fraud.

According to the letter on July 31, exporters of certain goods must present their reimbursement requests to jurisdictional tax authorities for clearance. Beginning on October 1, the notification’s modifications will be in force.

The GST Council reviewed the problem of fraudulent exports and phoney invoices to get unauthorized reimbursements, and it was proposed that the IGST automatic refund route on exports be shut down for commodities including pan masala, gutkha, chewing tobacco, and related things.

The products subject to the automatic IGST return restriction include pan masala, unprocessed tobacco, hookah, gutkha, smoking combinations for pipes and cigarettes, and other things like menthol oil. Such commodities are subject to cess and 28% IGST.

As the refund cash would stay with the Government for a more extended period, restricting IGST refunds may result in a brief boost in tax income for the Government.

The finance ministry recently informed Rajya Sabha that the GST authorities had discovered Rs 3.33 trillion in tax evasion over the previous five years, of which Rs 1.08 trillion has been recovered.

Effective from October 1, 2023, the Indian Government has decided to cease automated Integrated Goods and Services Tax (IGST) refunds on the export of goods like pan masala and tobacco. This move has significant implications for the tobacco industry and the larger economy, and it reflects broader policy initiatives to curb the consumption of these products.

In India, implementing Goods and Services Tax (GST) has replaced various layered taxes that the central and state governments previously levied. There are three components of GST: There are three types of Goods and Services Taxes: Central (CGST), State (SGST), and Integrated (IGST).

IGST is a component of GST, applicable to the supply of goods and services across different states within India, as well as to imports and exports. Exporters usually receive refunds on IGST to ensure that the tax does not become an additional export cost, thereby encouraging international trade.

The Government’s move to halt automated IGST refunds on pan masala and tobacco is rooted in various social, economic, and health considerations:

1. Health Concerns: Both pan masala and tobacco are associated with severe health risks, including cancer, respiratory ailments, and addiction. By discouraging the production and trade of these goods, the Government aims to prioritize public health.
2. Economic Implications: Automated IGST refunds provided a financial incentive to export these products. By ceasing these refunds, the Government is redirecting support away from industries that produce harmful by-products.
3. Alignment with Existing Policies: Cancelling automated IGST refunds aligns with existing policies to reduce the consumption and availability of pan masala and tobacco. High excise duties and strict advertising regulations are other measures taken in this direction.

The decision to stop automated IGST refunds is expected to have significant effects on the industry:

1. Reduced Exports: With the benefit of refunds, exporting pan masala and tobacco products may become more competitive, leading to reduced international trade.
2. Financial Impact on Manufacturers: Export-oriented manufacturers of these products may face financial challenges due to the increased cost of exports.
3. Potential Shift in Focus: Some manufacturers may shift their focus to other products or domestic markets to mitigate the impact of this policy change.

The decision to stop automated IGST refunds on pan masala and tobacco from October 1, 2023, is a noteworthy policy change that aligns with the Indian Government’s ongoing efforts to reduce the consumption of these harmful products. While the implications for the industry are significant, the broader societal benefits in terms of public health may outweigh the potential economic downsides.

This policy change strongly indicates the Government’s willingness to prioritize health over financial incentives, and it represents an integral part of a larger strategy to promote a healthier society in India