Shipping industry under GST regime has suffered a lot and to understand this we may further try to reach the reason. GST has given many positive results but just at International level while domestic ones have not witnessed any advantage.
The shipping industry has highlighted some disadvantages of GST which seek government attention includes:
- Discrimination in the applicability of GST on outbound freight
- Indian companies are compiled to pay IGST of 5% on imported vessels
- Bunker fuel and relevant goods are also proving as pain points while considering the place of supply and ITC
- No refund of ITC on GST paid on export freight charges is provided to Indian companies by the government
- Classification of bareboat charter and other charters is also an unresolved issue under GST
Discrimination in GST on outbound freight, when compared between Indian and foreign companies, is a major issue. For example when an Indian shipping company offers transportation services to the domestic exporter outside the country by a vessel then the Indian company is bound to supply the services at exporter’s location and to pay 5% GST while when a foreign company serves the same transportation to an Indian exporter with no GST with the location of supply being destination of goods.
So. this does not justify GST for Indian shipping industries. “This might reduce the competitiveness of the domestic shipping companies as compared to foreign companies who carry out the same activities without any taxation in India”, read EY’s recent paper on the subject.
This is also an adverse effect of GST on Indian shipping companies that they are not getting any refund of ITC by the Indian government which they initially paid on GST for the outbound freight services, this spring out in the accumulation of ITC which further blocks the working capital of shipping lines. If the deadline of 30th September 2019 is not duly met by Indian shipping companies to get their refund of ITC, then there might be chances of losing the same forever.
As far as the import of good and service is concerned, Indians are supposed to pay 5% tax on the shipping charges, no matter it is imported by an Indian company or foreign company.
The condition, when the importer does not, has the value of taxable service by the shipping company, the value will be calculated as 10% of the cost, freight value and insurance of imported goods.
The charges for ocean freight will also be taken into consideration while calculating customs duty and IGST payable on import. As per the norms of Customs Tariff Act and IGST Act, if we pay IGST separately for ocean freight the same will twice. Gujarat High Court has thrown light on this issue.
“However, all these issues and pain points have been presented by the industry and us to the ministries concerned and we are waiting on when this would be taken up in the GST Council,” said a Mumbai-based analyst.
