In a recent move strengthening Nepal-India trade, the Indian Government announced exemption of the Goods and Service Tax (GST) for Nepali traders for their service-related purchases made through Indian currency.
The Government of India said this in its Gazette notification on October 27, 2017, wherein, it announced the removal of GST on supply of its services to Nepal and Bhutan in case of payments made in the Indian currency.
Though GST is not applicable on export of goods and services, it was exempted only for the payments that involve convertible foreign currencies.
With this, the cost of service exports involving cargo handling, transportation and container freight station became costlier. This turned into a burden for Nepalis, who usually transact with the Indian service providers in the Indian currency.
Following this, the Government of Nepal and the country’s private sector sought GST exemption on Indian service exports to Nepal.
In response, in the last week of September 2017, the Indian Government announced GST removal on Indian services involving transit operations such as shipment, transportation, insurance, container freight station and cargo handling charges, among others for Nepal and Bhutan.
Transit and cargo handling are among the major service imports Nepali traders get from India.
According to Hari Bhakta Sharma, President of the Confederation of Nepalese Industries (CNI), the removal of GST would save Rs 10 billion per year on service imports for Nepali traders.
Rabi Shanker Sainju, Joint Secretary at the Ministry of Commerce Nepal, opines that the decision makes it easier for Nepali and Bhutanese traders to transact in Indian currency, which is widely circulated in both the countries.
The recent amendments to GST rules on the recommendation of GST Council of India will boost service exports from India to Nepal, Sainju added.
It’s noteworthy that the Nepal Rastra Bank also encourages Nepalis to make payments in Indian currency.