Indian freight forwarding and logistics sector could lose a large chunk of Rs.20, 000 crore International freight forwarding business to competitors.
India’s freight forwarding and logistics sector could lose a huge chunk of the Rs.20,000 crore International freight forwarding business to the International competitors due to a tax parity issue which occurred due to the implementation of the GST regime.
The GST requires an Indian freight forwarding company to levy GST on all the shipments to India to an overseas supplier. However, an overseas company does not face any incidence of tax on the same transaction if it chooses to work with a foreign freight forwarder. This shows that Indian freight forwarders could lose their edge in competing with the foreign freight forwarders for the transactions which involve imports to the country. Overseas suppliers to India prefer Indian freight forwarders because of their familiarity with the Indian customs documentation, procedure and other formalities. This business has been gaining traction over the last eight years. However, since an overseas company cannot claim an input credit, they have now stopped preferring Indian freight vendors.
Indian logistic and freight companies will see their business from the overseas suppliers slip away since a foreign counterpart is in a better position in the GST regime. This loss in the business would mean a loss of direct tax payments since this income is no longer earned in India when the contracts are given to the foreign freight forwarders. The Indian freight companies are also at a disadvantage in terms of the exports of the goods. GST is applicable on services performed on the goods, which include value added services like labeling, painting and packaging. However, customs officials are levying tax on the services that are performed for goods like customs clearance, loading, unloading, transportation etc. and not only on the goods.
The Indian freight forwarding industry is a fragmented industry. There are about 50,000 to 70,000 small and medium enterprises in the sector that have the maximum share of Rs.20, 000 crore international cargo business annually. This issue of GST will have an impact on all types of businesses and will also have an impact on the economy of India. Logistics and freight forwarding business has had a significant share in the economy and a slowdown of the same will lead to a significant impact on the economy.