Fear of cash flow pressure grips industry without more GST exemption on export freight

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The Centre’s decision to withdraw the GST exemption on export freight earlier this month has left exporters jittery as they expect less cash at a time when they face weak demand in advanced countries, prompting them to look for a makeover.

After the extension is withdrawn, the following transactions would be taxable under GST as of October 1:

  • Ocean export freight charged to the consumer will have a 5% GST charge
  • Export air freight charged to customers in India is charged at a rate of 18% GST

While officials believe that with the ease of the refund process, there is no need to extend the benefit, exporters are asking for an extension. They claim it can take up to three months or even longer to get the money back.

The process is not complete until returns are filed and the filing deadline is the 20th of each month for transactions from the previous month. With rising interest rates and longer payment cycles from foreign buyers, exporters said there was a need for additional cash.

The freight forwarding industry believes this will have a huge impact on airlines, shipping lines, freight forwarders and the industry.

Failure to extend the GST freight exemption will have a significant impact on air freight trade. Ideally, export freight and freight forwarding should have been zero-rated, as is the case in most countries. India levied GST on this product when it was introduced. After many rounds of trade representation on the Council, he brought zero-rate relief, which was ideal, said K Vaitheeswaran Advocates & Tax Consultants, and a GST expert.

Where does the responsibility end?

This decision will have an impact on several fronts, ranging from the impact on freight forwarders’ cash flow, to the increased cost of freight for the exporter and the creation of cash flow pressures, to an accumulation input tax credit.

“At a time when the Center has launched the national logistics policy with the aim of reducing logistics costs, not issuing the GST freight exemption will increase logistics costs,” a freight forwarder worries.

He added, “This will put a strain on the cash flow of exporters who have not yet fully recovered from the slowdown in the pandemic and the lack of robust international demand for traditional export products.”

Where on the one hand the Ministry of Commerce asks to identify and promote the export of at least one product, the decision of the Center to withdraw the exemption will pose financial challenges, in particular to the SME segment, since many of them are cottage industries or below thresholds. Even for those who have registered their TPS, this increases their cost of compliance.

Afzal Malbarwala, President of the Air Cargo Agents Association of India, said: “The exemption will affect the community and the exporters. Cash will be the biggest hurdle. The government wants to promote exports and launched the PNL, which was accepted by all, and now it is a blow.

Shanmugham, a clothing exporter in Tiruppur said: “The entire textile industry is reeling from a serious situation due to the recession and the war in Ukraine. Any additional cost would be an additional burden on the industries for its existence. The exemption should be extended. »

Since freight rates have increased abnormally over the past two years, the 18% GST levy will further squeeze exporters’ cash flow.

Dr Ajay Sahai, Managing Director and CEO, FIEO, expect a notification extending the GST exemption on export freight to be issued soon. The issue of GST on overseas freight could be up for deliberation as the IGST on imports was recently overturned by the Apex Court.

A few airlines have contacted IATA, asking to ensure that the CASS billing date for the second half of September 16-30 should be dated September 30 only and not the 1st week of October.

Freight forwarders say this will be a big relief as their only major concern is charging GST for the last fortnight AWBs where we have not charged GST to their customers.

However, until the GST exemption on exports is notified, the industry must pay it forward and take the input credit through ITC or IGST.

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