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What Export GST Non-extension Means For The Logistics Industry

As the cost of funding is high in India, this step may make Indian exports dearer by 2 per cent to 3 per cent, offsetting the advantage of devalued rupee

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India's merchandise exports increased to a new high of USD 418 billion in fiscal 2021-22. This was owing to increased exports of engineering goods, jewellery, petroleum products, etc. Under the Atmanirbhar programme, India aims to further expand its export participation in global trade to 3 per cent by 2027 and 10 per cent by 2047. 

To achieve this, it is necessary to promote a conducive environment to meet global competitiveness by addressing the global demand for new, high-quality, and made-in-India goods. However, the recent expiry of the notification of the GST exemption on the export freight and non-extension of the same acts as a major hindrance to achieving the target mentioned above.

When the export sector is already dealing with severe challenges due to rising freight prices and slowing down the global economy, this step will likely impact Indian Exports considerably. The GST exemption on export freight has been in place since 2018, and the government provided this tax exemption to encourage exports.

As a consequence of this decision, all Indian goods exports will be subjected to a 5 per cent GST on ocean freight and 18 per cent on air freight. This GST amount can be claimed back after the money is realised. While the government claims that this is revenue-neutral, exporters argue that this will impact liquidity and will add to compliance requirements. As the cost of funding is high in India, this step may make Indian exports dearer by 2 per cent to 3 per cent, offsetting the advantage of devalued rupee. Indian exporters are urging the government to extend the exception, especially when the WTO is already hinting at a slowdown in global trade.

For logistics companies the withdrawal of this exemption is not good news. However, this will be a relief for some freight forwarders providing door-to-door service and were unable to claim ITC. For the majority of freight forwarders, GST of export freight will mean an additional fund requirement. As logistics is not recognised as 'Industry' hence cost of funding for freight forwarders is even higher. This increased logistics cost will have to be passed on to exporters which will in turn make exports costlier.

In these difficult times, when most countries are on verge of recession and the dollar is strengthening against other currencies, India may benefit from the situation by boosting its exports. These global crises have presented India with an opportunity to bolster its exports by re-crafting policies, with a major emphasis on expanding local manufacturing capacity and promoting "Make in India" globally.

The probable reason for the government not keen in continuing with the exemption could be to keep track of the export payment cycle or increase its own liquidity. It is also true that the government has also made it clear that it is only exempting GST of export freight for a limited period. Ideally Industry should be ready by this time. Considering the current geopolitical and economic situation it is favourable to continue with the GST exemption that can be help in expanding the nation’s export participation in global trade. 

(About the author: Amit Maheshwari is Founder, and MD, Softlink Global)

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Amit Maheshwari

Amit Maheshwari, Senior Director, Technology, Sapient Global Markets.

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