• Notification Date: 23-11-2022
• Notification No: N/A

Exporters to Benefit from withdrawal of GST Exemption on Outbound International Freight

A lot of confusion and cry has been going on among the exporters regarding the withdrawal of exemption of goods and services tax (GST) on international outbound ocean and air freight. Moreover, the exporters are assuming further squeeze in the margins will happen, since GST exemption has become a thing of the past now.  

But defying the popular belief, the exporters are likely to benefit from the new move. As a result of the pandemic, disruption in supply has been noticed across the world. Hence, the freight rates are much higher at present than it was before the pandemic. The rates have not revived to the pre-pandemic levels.  

Like other countries across the world, Indian commodity exporters are also struggling to cope up with the high freight rates. Besides, the imminent global slowdown may affect demand. In this present situation, the government has announced non-extension of the period of exemption of GST on Outbound International Freight to put into effect from 1st October 2022.   

Outbound ocean freight is taxable at the rate of 5% under the condition that Input Tax Credit (ITC) on goods (other than on ships, vessels including bulk carriers, and tankers) has not been availed. Outbound ocean freight is taxable at the rate of 18% if the entire ITC is taken. International Air freight is always taxable at 18%. 

However, even if Freight expenses are 20% of the Cost of Materials, the increase in GST element can be expected to affect the export prices of goods by 2-3%. The exporters who negotiate with their airlines or shipping lines can gain from the lifting of the exemption. They can receive necessary tweaks in the freight charged by them. By the new move, timely application and processing of refunds would be possible. Hence, lifting of the GST exemption would serve its purpose. It would help in rationalizing the tax structure and avoid cascading of taxes by reducing exemptions.