It’s a question of survival or healthy growth of small and medium freight forwarders owing to acute working capital crunch, post GST regime. Despite the government’s noble intent of bringing in structural reforms including radical changes in tax mechanism, the apparently hurried and less prepared implementation of GST created havoc on tens and thousands of those freight forwarders who depend on regular flow of their working capital. Consequently, many of them are on the verge of extinction owing to blockage of cash/capital flow in the name of GST compliances. Interestingly, there are no instances of GST implemented on sea and air export freight as well as on freight forwarders anywhere in the world, wherever it has been introduced.
Recent trade data published by the ministry of commerce for the month of November, 2017, showed a sharp increase of 31 per cent. It has also been witnessed that 24 out of 30 major product groups were in positive territory including engineering goods, petroleum, gems and jewellery, organic & inorganic chemicals, drugs & pharmaceuticals, marine exports, plantations, cotton yarns, fabrics & made-ups and plastics & linoleum. However, the major growth contributors were engineering, petroleum, gems & jewellery, organic & inorganic chemicals, marine and pharma.
“It is very sad that in spite of a present positive market trends we small and medium freight forwarders are facing huge challenges to run our business because of blockage of our working capital. Since the GSTN is not functioning properly owing to technical glitches, filing GST and claiming refund on time became a tedious job for us. For a small and medium freight forwarder, prime concern is to maintain the flow of business and relationship with customers (exporters and importers) by satisfying their increasing demand. At this backdrop working capital constraint has turned to be fatal for us,” said Mr Sunil Arora, Vice President, Air Cargo Agents Association of India (ACAAI) and MD, Delta Freight.
It is pertinent to mention that freight forwarders are the vital elements of the logistics chain as well as foreign trade. Of late, the Government of India acknowledged the role of logistics service providers in developing the Indian economy and hence recognized the sector by giving it infrastructure status. Accordingly, the logistics sector would now be entitled to obtain financial support from government institutions and banks and potential claimers of financial benefits that often offered to the Indian exporters. “At this moment we appeal to the government to take immediate steps to resolve issues related to blockage of our working capital as soon as possible, so that the present opportunity thanks to revival of international market can be translated into increase of Indian exports without any logistics or operational issues,” Mr Arora maintained. The ACAAI vice president also demanded that the GST Council, which is judiciously amending/relaxing the GST rules time to time on receiving feedback from industry practitioners, should consider on keeping freight forwarders out of GST ambit, as it is a standard practice in other parts of the world.
Meanwhile, good news is that the Parliamentary Standing Committee on Commerce in its 139th Report on the Impact of GST, which was submitted at the Rajya Sabha on December 19, has acknowledged the pain points of the freight forwarders dealing with sea and air cargo. The Committee has recommended that “GST on export freight through air, sea and railway may be exempted or rationalized.” The Committee notes that charging high rates of GST on air, sea and railway freight on exports not only cause additional cost burden on exporters but also erodes the competitiveness of export. The committee also maintains that imposition of GST on export freight which is later refunded is an unnecessary burden which stretches the working capital requirements of exporters.