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Govt may address GST anomaly on domestic shipping firms amid SCI strategic sale

Indian shipping companies are subject to 5 per cent GST if an overseas consignor appoints them for import cargo transportation but if the consignor appoints a foreign shipping line for the same service, GST is not applicable as the shipping company is not registered in India

Ashutosh Kumar | February 24, 2021 | Updated 18:25 IST
Govt may address GST anomaly on domestic shipping firms amid SCI strategic sale
GST anomaly to be addressed by govt

In what could be seen as a step to incentivise the domestic shipping liners to participate in the strategic sale of the Shipping Corporation of India (SCI), the ministry of finance is believed to be examining the Goods and Service Tax (GST) related anomaly on the cargo import and export service provided by the domestic firms. 

According to government sources, the ministry is looking into the matter pertaining to differential tax treatment of Indian and foreign shipping business, which results in higher taxation of the Indian vessel carriers. 

A source told BusinessToday.In on condition of anonymity, "DIPAM and department of revenue have discussed the issue. As of now, no formal proposal to correct the GST anomaly on domestic shipping has been sent to the GST Council, which is the apex decision making body on the issue." 

Indian shipping companies are subject to 5 per cent GST if an overseas consignor appoints them for import cargo transportation as the place of supply of service is destination of the goods, which is India. If the consignor appoints a foreign shipping line for the same service, GST is not applicable as the shipping company is not registered in India.

In a similar fashion, differential treatment in the tax applicability comes into play even in the case of outbound freight. If a domestic shipping firm provides outbound freight service to an Indian exporter, the company is liable to pay 5 per cent GST. In case the same service is provided by a foreign company to Indian exporter, the place of supply will be the destination of the consignment and hence GST will not be applicable. 

Experts believe that the differential tax treatment may serve as a disincentive for the Indian firms wanting to bid for the SCI, while it may be a lucrative option for the global companies.  

"The current GST regime favours foreign vessels. This is a point that needs to be corrected. Indian goods are being carried in foreign vessels. If there is a GST regime correction on shipping in terms of a deemed registration on the foreign shipping companies, it can be balanced and there could be a level - playing field. Till then, participating in strategic sale may be lucrative for foreign firms. As far as the Indian firms are concerned, additional taxes are a burden," said V S Krishnan, former member (GST), Central Board of Indirect Taxes and Customs.  

On December 22, DIPAM invited expressions of interest (EoI) for the strategic disinvestment of its 63.75 per cent stake in the SCI. The EoI submission deadline has been extended to March 1. According to reports, Great Eastern Shipping, US based Safesea Group, among others, are in race for SCI.

Also read: Economic Survey: Disinvestment falls short; govt desperate to sell Air India, BPCL, CONCOR, SCI

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