An organisation of exporters wrote to Union Finance Minister Nirmala Sitharaman, urging her to extend the Goods and Services Tax (GST) exemption on export freight that lapsed on September 30.The Federation of Indian Export Organizations (FIEO) expressed concern that if the exemption is not extended, it will add to their liquidity challenges amid rising interest rates.
Since its introduction in 2018, the government had extended the exemption twice till September this year. “Overseas freight rates had increased by 300–350 per cent from pre–Covid levels. Now, there has been a slight decline in such rates, but these are still 200–250 per cent higher than that of the 2019 levels,” FIEO President A Sakthivel said.
If the exemption is not renewed, exporters will be required to pay GST at 18 per cent on export freight, which will increase the logistical costs for Indian goods in the international market, he said.”Due to the recent increase in interest rates by the Reserve Bank of India, the GST payments on such high freight cost will have a significant negative impact on exporters’ liquidity,” Sakthivel said.Global trade is “entering a very challenging era as countries are facing high inflation”, with an “impending recession impacting the demand”, the FIEO president said.
“This is evident from India’s slowing export growth rate between April and August. Indian exporters are trying their level best despite the rupee being one of the most resilient currencies in the world, thus not providing less competitiveness to our exports as compared to our competitors as most currencies have depreciated at a much steeper pace,” Sakthivel said in his letter sent to the minister via e-mail on October 2.He pointed out that the GST on export freight is “revenue neutral” as exporters will pay the same, and subsequently get a refund but with a lag of 2-3 months, blocking their capital.
“This may augment liquidity of the government but at the cost of exporters. Since the cost of credit for exporters is much high, an exemption will help the sector maintain better liquidity, which is the need of the hour,” he said.Sakthivel urged Sitharaman to take an early decision for the exporting community, which is passing through a difficult phase. FIEO had recently appealed to the RBI to introduce an export refinance scheme to insulate export credit from the hike in interest rates.