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Karnataka pharma exporters in cash flow crisis with no IGST refunds from customs

Nandita Vijay, Bengaluru
Wednesday, November 22, 2017, 08:00 Hrs  [IST]

Karnataka pharmaceutical exporters are facing a major cash flow crisis prolonged delay in getting refunds after making the payment of integrated goods and services tax (IGST) before exports are effected. Companies in large, medium and micro segments from the state export to various countries.

The state occupies the fifth position in the pharmaceutical exports. Around 40 per cent of the state’s pharma produce is exported overseas. It is about 10 per cent to the pharmaceutical export revenues of the total US$ 16.8 billion of the country.

According to Sunil Attavar, president, Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA), the government has issued a series of new notifications to help exporters to get their refunds. KDPMA has taken up the matter with senior officers and they have assured the Association that the process of refunds has started. Some companies are still facing procedural problems which may be sorted out. It is a serious problem for the MSMEs with large amounts held up and this has impacted their cash flows to a great extent.

“IGST refund is a challenge. Whatever measures taken by the central government, has not resulted in the smooth functioning of this landmark tax regime. Even if the government has been indicating that reimbursement can be sought, pharma exporters face issues to access the website for refunds,” said Anjan K Roy, founder and chairman, RL Fine Chem.

These issues affect MSMEs to seek refunds on time which upsets payments to vendors, stalls supply chain and flow of exports, he added.

“The bureaucratic inefficiency has messed up the whole process of IGST implementation. So it could lead to profitable companies to be in debt. The government should understand that if they don’t take up measures immediately then many companies could be out of business. More over there is no access to bank funds to offset this monetary crisis of delayed IGST refunds, pointed out the RL Fine Chem chief.

Airing a similar tone was Jatish N Sheth, director, Srushti Pharmaceuticals, who contended that cash crunch issues will dent the company’s growth.

Sunil Mundra, managing director, Natural Capsules stated that exporters are suffering and cash flows are affected because payment cycles are off track. It has delayed payment to suppliers. On top of this, companies have not got the export benefits too. These include online services like MEIS (Merchandise Exports from India Scheme) of the new foreign trade policy applicable from 2015 to 2020. This is yet to come through and right now it is cumbersome with considerable paper work. Thus companies are in deep trouble with dip in earnings.

Earlier the government wanted bank guarantees for IGST payment but this is withdrawn and replaced with bonds. Natural Capsules had gone in for bank guarantee with LUT (letter of undertaking) and its money is stuck. This is one flip flop policy which is causing lot of trouble, he added.

However now the government has provided 0.1 IGST levy which has given some relief to exporters. Another option is that companies can export at the full rate of IGST so against the shipping bill generation, they can get the refund immediately. But there is no clarity on the surplus GST lying with the exporters. For instance if a company has got an 18 per cent input on APIs or formulations or machineries on the export it is 12 per cent . Now the 6 per cent which is available with the company cannot get recovered because the exporter does not have local marketing presence. Therefore these are some of the issues which are affecting the industry, said Mundra.


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