India is the 16th largest maritime country in the world and the shipping and logistics sector is the center of the complete supply chain with freight forwarders and shippers playing a major role in the movement of goods. India ranks 2nd in ship recycling, 21st in shipbuilding on the global radar, and also is one of the top 5 countries to share trained manpower and seafarers.
With the announcement of GST, dozens of central and state tax laws were merged with a vision to progress toward a Digital India. Under GST, indirect tax rates on the logistics & shipping sector have decreased from 4.5% to 5% on import ocean freight, and handling and other service tax have increased from 15 to 18%. On the contrary, the bunker cost was reduced from 18 to 5%, thus saving costs. Even though the rates of tax have been increased, the recoverability has also improved. Also, the registrations got decentralized at the state level, which increased the compliances. Lots of new bills were introduced like the E-way bill, which helped in tracking the movement of goods and also helped tax evasions in check.
Not only that, the govt. also excused outbound ocean freight towards transportation of goods from India to an international destination via sea, which is applicable up to 30 September 2022. While this excludes tax on output but leads to credit buildup in the hands of the shipping lines.
Even though a lot has been done but some issues are still to be addressed in this sector:
The import of ships or vessels in India is exempted from customs duty, but from July 2017, a 5% IGST has been levied on the import of ships or vessels in India – which is quite significant, considering the value of the ship.
The shipping sector is a high-volume, low-margin business, this 5% IGST records a considerable accumulation of input tax credit – significantly competitiveness of domestic shipping businesses. Thus, the government should revisit the policy and assess options like extending IGST exemption on the import of ships or vessels in India, like the erstwhile tax regime.
Besides that, better clarity on the multimodal transport category is needed and a reasonable solution is needed to avoid credit accumulation thereby allowing a refund of the input tax credit.
Overall, in the last 5 years, some crucial matters have been addressed by the GST Council, however, this is a continuous process, and requires regulations to streamline the process.