Indian export freight to go up as deadline for 5% tax waiver expires

New Delhi — As the deadline for India's waiver of 5% Goods and Services Tax (GST) on export freight expires Sept. 30, shipments out of the country are set to get costlier with shipping liners have already issuing advisories informing customers of the impending hike.

In January 2018, the Indian government announced the waiver of 5% GST on export freight. While the relaxation was initially valid till Sept. 30, 2018, the government has been announcing yearly extensions since then.

"We were hoping for an extension this year as well, but in the past the government used to issue a notification well in advance. Let's see if they come out with an extension by the end of the day," a freight-forwarder based in India said.

"In case the said exemption is not extended, CMA CGM will charge GST at 5% on export freight and freight related charges for all invoices issued in India, effective Oct. 1, 2020 or subsequently," the French carrier said on Sept. 30.

COSCO India also issued a similar notice informing customers of the hike.

Meanwhile, Federation of Indian Export Organisations (FIEO) believes that the 5% GST is no longer valid. FIEO has written to Container Shipping Lines Association (CSLA) asking them to clarify the same.

"As per the IGST (Amendment) Act 2018, in section 12 of the principal Act, in sub-section (8), the following proviso shall be inserted, namely: Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods," FIEO said.

In 2019, the government amended the place of supply rules and as per the place of supply rules in respect of freight, the place of supply will be the destination of the goods, FIEO DG & CEO Ajay Sahai told S&P Global Platts. If the destination of goods is outside India, the place of supply becomes outside India and no GST is payable, Sahai said.

However, officials at shipping companies feel otherwise.

"The export association seems to be misinformed. Unless there is an extension, the 5% GST will be applicable from tomorrow," Sunil Vaswani, Executive Director, Container Shipping Lines Association told S&P Global Platts.

However, this is not a very good time to levy the tax on exporters as the economy is already struggling in the aftermath of COVID-19 and this move could discourage exports, Vaswani said.

Container rates in India have been on an upswing for the last few months due to acute equipment shortage in Asia on account of supply disruptions amid the ongoing pandemic.

The situation is further aggravated as shipping liners are diverting capacity on the trans-Pacific route due to record high prices, leaving exporters in other parts of Asia scrambling for empty containers.