IGI Logo

The Federation of Indian Export Organizations (FIEO) has urged Union Finance Minister Nirmala Sitharaman to extend the Goods and Services Tax (GST) exemption on export freight that lapsed on September 30. The 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.

FIEO President A Sakthivel has said that 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. 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. 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. Global trade is entering a very challenging era as countries are facing high inflation, with an impending recession impacting the demand.

Sakthivel 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.’ 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. He stated '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.'