Thursday, July 20, 2017

Indian Export Interests Complain New Tax Regime is Detrimental to Shipping Economy

Latest Range of GST Charges Rationalise Contributions but has detractors
Shipping News Feature
INDIA – As Europe puzzles over how segregation from Britain will work after Brexit, particularly the question of border controls in a divided Ireland, it seems somewhat curious that any sovereign country would introduce legislation destined to cause queuing at points between individual internal states. This however is India, a country in which the government made 86% of India's banknotes void overnight, plunging the economy into a downward spiral which is still having repercussions, and now shipping interests say a new range of taxes will also directly affect exports.

A row has blown up over the government’s intention to impose a ‘Goods and Services Tax’ (GST), effectively a type of Value Added Tax (VAT), but one in which certain types of product are exempt, leaving individual state governments the power to tax these at their own chosen rates. Although the customs posts which traditionally hampered interstate trade have been disappearing of late, this tax now gives over-zealous officials an excuse to once again stop trucks to carry out inspections and levy fees for the ‘service’.

Although GST seemed initially like an excellent idea, sweeping away around forty individual taxes, true to form the Indian administration was not content to bring in a standard rate covering non-essential items and services. Press in India reports that some states are already effectively double charging, with taxes added to products already subject to GST, for example automobiles.

Negotiating the final levels of GST has resulted in the usual compromise, something some have described as a pig’s breakfast, with several tax bracket levels currently imposed with the object being to reduce these in number over time. What this means effectively is that many companies will amend their offerings to fit into a lower rate bracket, for example if you eat in a restaurant with no air conditioning apparently the food will be cheaper than if this has been installed.

The government's Ministry of Commerce and Industry says it has arranged many meetings to discuss GST, with a variety of seminars, particularly in the Special Economic Zones, and stakeholders attending including the Associated Chambers of Commerce & Industry of India (ASSOCHAM), the Confederation of Indian Industry (CII), a variety of specialist trades as well as the PHD Chamber of Commerce & Industry, which organisation’s Civil Aviation Committee has complained that the tax will unfairly hinder exporters. In a statement the Committee said:

"Subjecting international freight at 18% GST is totally unfair as it will stifle the growth of air cargo. Why would the Government of India want Indian exporters to pay extra 18% GST on freight and make our goods non-competitive in international market."

Despite the fact that the tax can be reclaimed under the CENVAT credit rules the PHD points out that the administrative time and consequent costs involved still impact negatively on the sector, and this at a time when India is aiming to move further up the league of countries in terms of international shipping statistics.

Whether or not traders generally approve it looks as if GST is here to stay, and it will have undoubted benefits for a government which demonstrated its implacability with the bank note affair. India has never had the ability to assess the true state of its trading economy using modern technology. The statistics which GST reports will throw up means the billions of transactions, if properly analysed, will give a much more comprehensive and accurate picture of the types and volumes of businesses which currently trade in the country.