The country is cautiously watching the recent change in the Indian tax regime as two-third of the country’s trade takes place with the southern neighbour, which also provides transit facility for third-country trade. Though the goods and services tax enforced since July 1 is not applicable for goods exported from India, it might have an impact on Nepal’s export to India and on services availed while using India as a transit for export and import to/from third countries. Meanwhile, the government has initiated a study to learn how India’s GST will affect Nepal. Pushpa Raj Acharya of The Himalayan Times caught up with Shekhar Golchha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry, and Bishnu Nepal, chief of Revenue Division under the Ministry of Finance, who is also the coordinator of the study panel formed by the finance ministry, to know more on how the GST introduced by India could have an effect on Nepal. Excerpts:

‘I think the GST will boost authorised trade from India to Nepal’

— Shekhar Golchha

India has recently implemented the goods and services tax. Will it affect us or not?

There will not be any direct impact of the goods and services tax (GST) introduced by India on Nepal because GST is not applicable for exports from India. The reason is because Indian exporters will get a refund on the amount levied as GST once the Indian customs certify their exports. I think it will boost authorised trade from India to Nepal because a large chunk of businesses in the unorganised sector is expected to come into the organised sector.

There have been assumptions that certain imports from India will be cheaper while others might become dearer as India has enforced multiple rates on various products and services. Do you see such possibilities?

There has been a lot of confusion regarding the services being availed in India by Nepali traders like transport facility, insurance and consultancy, just to name a few. It is not clear whether the Indian tax administration will consider them as service export or not. If they do consider service taken by Nepali traders as export, then service providers in India will be able to get GST refund. If not, then Nepali traders will have to pay more for services and that cost will have to be taken into account while calculating the cost of the goods. So, the cost of goods imported from India and also from third countries will slightly go up.

Are there any possibilities that the Indian government could consider services being availed by Nepali traders in India as service export?

It is still not clear how the Indian tax administration will deal with that issue. I think that since Nepali traders are taking services in India during transit those services should be classified as service export. We have also consulted the commerce wing of the Indian Embassy in Kathmandu regarding the matter. However, we have not received any clear

answers. I think there should be government-to-government level talks on specific points where Nepal would be affected by the change in the Indian tax regime. FNCCI, as an umbrella body of the private sector, has drawn the attention of the prime minister that the issue should be raised during his upcoming visit to India.

Nepali exporters are also anxious about the GST being applicable on exports from Nepal. Do you think Nepali products can compete in the Indian market even after enforcement of GST?

There will not be any disadvantage for Nepali exporters because GST has replaced all the other taxes levied earlier on imports to the Indian market. Earlier too, there were various taxes like sales tax and countervailing duty, among others. There is no reason for exporters to be anxious.

You have mentioned that unauthorised trade will be minimised due to the implementation of GST. Do you think it will also control the rampant underinvoicing in imports from India?

GST will bring a large chunk of Indian businesses in the unorganised sector under the tax net, so they will have to do their book keeping properly. As a result there will be fewer chances of issuance of fake bills for Nepali importers. Control in underinvoicing in imports will also help the Nepali government to increase its revenue from import of goods and maintain price uniformity in the market.

‘GST will end hassles associated with traders underinvoicing bills during import’

— Bishnu Nepal

How has the government analysed the possible impact of goods and services tax that has been implemented in India?

The GST is a more scientific tax system enforced in India since July 1 as compared to the previous tax system. The single taxation system has removed all the ripple effects of various taxes of the central and state governments on imports from India. On a positive side, it will encourage Indian exporters to issue genuine sales bills as the Indian vendors will get GST refund on exports. This will end the hassles associated with traders underinvoicing their bills during imports. Customs clearance process could be shortened as the customs officers will not have to spend more time on valuation of goods at the customs point. However, GST could hit export sector because GST is applicable on imports in India. India has introduced multiple tax rates under GST based on the nature of goods and it could affect the export of sophisticated items. However, as a majority of the exports from Nepal are primary products, it might not affect our export sector much.

Traders have said that since the implementation of GST, service charge on cargo handling and transportation has increased and it will also affect third-country trade. Do you have any information on it?

As our traders have been using services of Indian port, transportation and container freight stations, among others for third-country trade, the GST that is levied on such service providers registered with GST might affect our traders. However, there is no clear information on whether or not service providers in India will get tax refund because they

are exporting services to Nepali traders. If the Indian government levies GST on such services, the government will talk to its Indian counterpart for a revision.

The government and traders have still been scrambling to make sense of GST. What is the government panel doing regarding it and how will it affect Nepal?

The panel formed by the Ministry of Finance under my leadership has been reporting to the revenue secretary on a day-to-day basis by monitoring the customs points and based on the interactions with traders. Import from India under GST from various customs points except Raxaul (Birgunj) is almost nil because the government of India is yet to equip its customs points to issue export certificates, among other issues. There are various agencies interacting with concerned agencies of the Indian government. The Nepali Embassy in New Delhi has asked us to visit Delhi to interact with the Indian tax authorities to learn more about GST and to convey Nepal’s perception to them. To do this, the finance minister has formed a working committee comprising officials from Ministry of Foreign Affairs, Ministry of Commerce, Ministry of Industry, National Planning Commission and Office of the Prime Minister and Council of Ministers, among others. The Ministry of Commerce has also carried out discussions with the private sector on the possible impact that the GST could have on Nepal. We will put our view across to the Indian authorities once the working committee prepares a report on it.