Over 50,000 small Freight and Logistics companies affected by impact of GST on imports and exports!

Since the roll out of the Goods and Services tax (GST), approximately 50,000 small and medium enterprises (SME) in the freight forwarding and logistics industry have begun to see their international cargo business slip away. Unless the government resolves a couple of issues quickly, the situation for these SMEs will get worse. Nailesh Gandhi, President, Association of Multimodal Transport Operators of India (AMTOI) and Director, Express Global Logistics, outlines the issues. Read On ..

What is the size of the Indian freight forwarding industry? Why don’t we have valid numbers on these companies?

This is primarily a fragmented sector and mostly made up of many small and medium enterprises (SME). In my estimate, there are probably around at least 50,000 companies that are involved in stevedoring, handling and managing cargo, customs clearance, etc. The turnover generated by this sector should be around at least Rs 2 lakh crore annually.

What is the problem they are facing now with respect to import of goods?

The issue is with respect to tax parity. A condition has been introduced in Section 13 (9) that the applicability of tax is based on the destination of goods. What this means is, for instance, if I have to ship goods from Singapore to India, I have to charge 5% to the overseas customer. If I ship his goods from Singapore to some other country, then there is no problem. However, any overseas supplier to India who is shipping goods using an Indian freight company, will be charged 5% more on the value of the cargo. Basically, in freight, there are two types of contracts. The overseas supplier ships the freight to India either on a freight paid or on a freight collect, also known as freight on board (FOB) basis. When it is FOB, the consignee or importer in India decides which forwarder will bring the cargo but when it is a prepaid contract, it means the shipper is taking the responsibility of handing the cargo to India. Hence, in such a contract, the shipper pays the freight. This business had been building over the last five-six years. However, because there is a condition now in Section 13 (9) that applicability of tax is based on the destination of goods, the minute I bill a foreign customer who is coming to India, I have to charge him 5%. Now, the Indian importer is already paying tax because he is already paying the integrated goods and services tax (IGST) for the freight in India. So, this is basically double taxation. Now, why would any foreign company come to an Indian freight forwarder? In fact, when you have such a parity issue, you not only lose foreign exchange, you also lose business. All the chemical companies have stopped business with Indian freight forwarders. The freight charges could be as less as Rs 50 lakh a month since we are talking about SMEs, and so many such transactions have now just disappeared. In my own case, we were working with a Belgian company but they have stopped business with us now.

What about export?

This comes under Section 13. There seems to be a gap in the government’s understanding what should be considered as export of services. Section 13 (3) defines what constitutes export services and if any company is providing such services, then this activity is taxable. Let us take an example. Let us say that a customer has made a shipment of cranes to India, for a petrochemical project, and he now wants to export these cranes elsewhere after the project is over. If he engages us to repair the cranes, paint it, or perform some service on it, this activity should be taxed and we are okay with it. However, the confusion is with respect to when I am performing an activity for the goods and not on the goods. For instance, if I am doing Customs clearance, I might have to present the cargo to the customer. When it comes to the port, I have to unload it. These are services for the goods and not on the goods. Some of the officers at the field level have started creating confusion by saying that loading, unloading and cargo handling are also performance on the goods so it cannot be covered under export of services. Now if this Section is made 13 (3) is made applicable to the logistics industry, there is not a single transaction which can be earning foreign exchange because everything becomes out of purview of export of services. The minute it becomes out of the purview of export of services, it is taxed. The minute it is taxed, it becomes a cost burden because my customer cannot take credit as he is not sitting in India. The government has to quickly issue a clarification that Section 13 (3) does not apply to logistics industry. In fact, seven out of ten officers have made it clear that it is not applicable but the three remaining field officers out of the ten have to toe the line.

Have you made any representations to the government?

Five associations have written to the government, namely AMTOI, Freight Forwarders Association of India Air Cargo Association and Consolidators Association of India. Together, the member companies of these four associations handle 99% of the international transportation business, which must be at least around Rs 20,000 crore. The real sufferers are the small Indian freight and logistics companies.

- TradeBriefs Bureau - 

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