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Impact of Integrated Goods and Services Tax (IGST) on Imported Goods: A Comparative Study of Pre- and Post-GST Systems

Abstract

The implementation of the Goods and Services Tax (GST) in India brought about a fundamental change in the country’s indirect tax structure. A key component of this transformation was the introduction of the Integrated Goods and Services Tax (IGST), which applies to interstate trade, including imports. This article offers a comparative analysis of how IGST has impacted imported goods, highlighting the differences between the pre- and post-GST eras.

Introduction

Before GST, the taxation of imported goods in India was complex, involving multiple indirect taxes such as customs duty, central excise duty, and service tax. This led to a fragmented tax system with cascading effects and high compliance costs. GST aimed to simplify this system, eliminate cascading effects, and create a unified market.

Impact on Imported Goods

Previously, imported goods were subject to basic customs duty, additional customs duty (countervailing duty), and special additional duty, resulting in a high tax burden. Moreover, the absence of input tax credit (ITC) meant that businesses couldn’t offset taxes paid on imports against their output tax liability.

Under GST, the taxation of imported goods changed significantly. IGST replaced multiple taxes, eliminating cascading effects. Importers now pay IGST on the value of imported goods, which includes assessable value, basic customs duty, and any other customs charges. However, IGST is levied only on the value of goods, not on customs duty.

A significant benefit of the GST regime is the availability of ITC. Importers can claim ITC on IGST paid on imported goods, offsetting their output tax liability. This has reduced the tax burden on imported goods, making them more competitive domestically.

Conclusion

The introduction of IGST under GST has simplified the tax structure, reduced the tax burden, and enhanced the competitiveness of imported goods in the domestic market. Challenges remain, such as streamlining the refund process for exporters and addressing issues related to classification and valuation of goods. Nevertheless, GST has brought about a substantial change in the taxation of imported goods in India, leading to a more efficient and streamlined indirect tax regime.

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