Exporters Seek GST Extension on Export Ocean Freight

Exporters have sought an extension of previously granted exemption from Goods and Services Tax (GST) on export freight, citing that a non-extension will add to their liquidity challenges.

In a letter to Finance Minister Nirmala Sitharaman on Sunday, the Federation of Indian Export Organisations (FIEO) said that overseas freights have increased 300-350% from pre-Covid level and refund of GST through Input Tax Credit comes with a lag of 2-3 months which affects cash flows.

The exemption from GST on export freight ended on September 30 post which exporters will have to pay 18% GST on export ocean freight.

“The global trade is entering into a very difficult phase as countries are facing high inflation and impending recession affecting the demand. The rate of growth in exports is also coming down as can be seen in the export growth rate from April-August,2022,” FIEO said.

India’s goods exports slowed to 1.62% in August and the trade deficit more than doubled to $27.98 billion from the year- ago period. Imports rose 37.28% to $61.9 billion in August this year.

The exemption from GST on export freight was extended twice after it was introduced in 2018 and the last extension ended on September 30 after a two-year run.

“Non-extension of notification has caused panic and uncertainty adding to the liquidity challenges of the exporters,” the organisation said.

As per the organisation, the payment of GST on export freight and subsequent refund particularly through ITC mechanism comes with a time lag of generally 2-3 months or so, though refund through IGST mechanism is faster a move and that will affect India’s agriculture exports the most as the air freight in many cases of export of fruits and vegetables, is higher than the FOB value of exports.

FIEO argued that GST on exports freight is revenue neutral as exporters will pay the same and subsequently get a refund through a refund mechanism which “may augment the liquidity of the government but at the cost of the exporters”.

Since the cost of credit for the exporters is much high, an exemption will help the export sector to have better liquidity, which is the need of the hour, the apex body of exporters said.