GST Council may cut tax on shipping MRO to 5% from 18% currently

Along with the GST slab change on shipping MRO, the council may also amend the place of supply rules to incentivise foreign vessels opt for tax free MRO services in the country

The Goods and Service Tax Council is likely to reduce GST on maintenance, repair, and overhaul (MRO) services in the shipping sector form current 18 percent to 5 percent in order to align the tax rates with the competing nations like Singapore, United Arab Emirates  (UAE) and Sri Lanka in the sector.  

Along with the GST slab change on shipping MRO, the council may also amend the place of supply rules to incentivise foreign vessels opt for tax free MRO services in the country.  

A source close to the development told BusinessToday.In on condition of anonymity that both GST reduction on shipping MRO and amendment in the Integrated Goods and Service Tax (IGST) Act for place of supply rules in the sector will be deliberated by the Council tomorrow. Another source pointed out that while the tax rate is likely to be reduced on shipping MRO, it may come with full input tax credit (ITC) benefits.   

Also read: Exclusive: GST Council likely to announce amnesty on delayed returns

It may be noted that as per the current place of supply rules, GST is not levied in case the foreign ships come to India exclusive for repairs. This, however, happens seldom as ships generally go in for MRO service during the intervening time between arrival and departure with cargo. MRO service between the transport thereby becomes a taxable act as place of supply in the case is India.   

An amendment in the IGST act will therefore be made with regard to repair of foreign ships in India clarifying that the place of supply in such case will be location of the recipient of the service. The service will therefore be zero rated.  

Experts believe that the proposal, if approved by the GST Council tomorrow, will benefit the sector. Mahesh Jaising, partner, Deloitte India told BusinessToday.In, "There is a merit to this proposal for the shipping sector. It will result in financial saving for the shipping companies."

"Any reduction in the GST rate will always have a positive impact on the industry as long as input tax credits are available. Similar to aviation, if GST rates are slashed on MRO services in shipping, it will significantly reduce the cost for the shipping industry as well as encourage domestic players to increase their bandwidth," said Rajat Bose, partner, Shardul Amarchand Mangaldas & Co.         

Also read: GST Council meet: Tax cut on medical oxygen, concentrators, oximeters likely; no relief on vaccines, PPEs

Interestingly, the tax rate on shipping MRO in Sri Lanka and Singapore is zero while the United Arab Emirates raised the rate from 5% from zero a couple of years back. A similar tax reduction was done by the GST Council for the MRO in aviation sector last year.  

The other issues that the council is likely to take up in tomorrow's meeting are tax cut on medical oxygen, oxygen concentrators, pulse oximeters, and testing kits, Covid cess on pharmaceutical and power industries in Sikkim, correction of the inverted duty structure in textile and footwear sector, and an amnesty scheme for the late filing of the GSTR-3B returns.

Also read: Exclusive: GST Council to discuss Covid cess on power, pharma sector in Sikkim