No GST exemption on Outbound Ocean Freight from 01-10-2022

The Indian government recently announced that from 1st October 2022, outbound ocean freight will no longer be exempt from GST. This new proposal will have significant implications for Indian small and medium businesses (SMBs) and startup founders who export goods internationally.

What is GST?

GST stands for Goods and Services Tax. It is a tax levied on the sale of goods and services in India. GST is a comprehensive tax that subsumes various other taxes like excise duty, VAT, and service tax. It was introduced on 1st July 2017, with the aim of simplifying the tax structure in India and making it more transparent.

Outbound Ocean Freight and GST Exemption

Currently, outbound ocean freight is exempt from GST in India. This means that Indian exporters do not have to pay any GST on the transportation of goods by sea to other countries. However, this exemption will be removed from 1st October 2022, which means that GST will be levied on outbound ocean freight.

Impact on Indian SMBs and Startup Founders

The removal of the GST exemption on outbound ocean freight will have a significant impact on Indian SMBs and startup founders who export goods internationally. Currently, these businesses enjoy a competitive advantage over their foreign counterparts due to the exemption of GST on outbound ocean freight. This advantage will be lost when the exemption is removed, and businesses will have to pay GST on transportation costs, which will increase the overall cost of exporting goods.

This increased cost will have a direct impact on the profitability of Indian SMBs and startup founders. They will either have to absorb the additional cost, which will reduce their profits, or pass it on to their customers, which will make their products more expensive and less competitive in the global market.

Recommendations for Indian SMBs and Startup Founders

Indian SMBs and startup founders who export goods internationally should start preparing for the removal of the GST exemption on outbound ocean freight. They should consider the following recommendations:

Assess the impact: Businesses should assess the impact of the removal of the GST exemption on their profitability and competitiveness in the global market. They should calculate the additional cost they will have to incur due to the introduction of GST on outbound ocean freight and evaluate their pricing strategy accordingly.
Explore alternative modes of transportation: Businesses should explore alternative modes of transportation, such as air or land, to reduce their transportation costs. However, they should also consider the impact of these alternative modes of transportation on their overall supply chain and delivery timelines.
Optimize their supply chain: Businesses should optimize their supply chain to reduce their transportation costs. They should consider consolidating their shipments, using a more efficient route, and negotiating better rates with their logistics partners.
Explore tax benefits: Businesses should explore tax benefits offered by the government to offset the impact of the removal of the GST exemption on outbound ocean freight. They should consult with a tax expert to understand the various tax incentives and exemptions available to them.

Conclusion

The removal of the GST exemption on outbound ocean freight from 1st October 2022 will have a significant impact on Indian SMBs and startup founders who export goods internationally. These businesses should start preparing for the change and explore alternative transportation modes and optimize their supply chain to reduce their transportation costs. Additionally, they should explore tax benefits offered by the government to offset the impact of the removal of the GST exemption on outbound ocean freight.