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India extends 4.5% tax on import, goods will be costlier

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Staff Writer | January 21, 2017
India will impose a total of 4.5% service tax over freight on cargoes imported on a delivered or CFR basis from January 22.
Cargo ship
Trade and taxes   There will be additional burdens on importers
This service tax was already being levied since June last year on cargoes that were imported on a FOB basis and ships chartered by importers domiciled in India.

The move is significant because it will make cargoes of commodities such as oil and coal costlier since shipowners will pass on the service tax to Indian importers, shipbrokers said, Hellenic Shipping News reports.

“The implementation of changes in India’s local service tax clause implies that there will be additional burdens on importers of cargoes,” one broker in Singapore said.

Any cargo imported into India such as crude, refined petroleum products, coal, coke, phosphoric acid, gypsum and limestone among others, will become costlier.

The total tax on imported goods will include the 4.2% service tax along with the Swachh Bharat (Clean India) Cess and Krishi Kalyan (Farm Welfare) Cess at 0.15% each.

When the service tax was first introduced on freight for imported goods in June 2016, most experts were of the opinion that the service tax was not payable if the owner and the charterer of the ship were not residents of India.

Since June last year, when the contract of supply was on a FOB basis and the vessel was chartered by the Indian importer, the service tax on the freight was paid by the Indian importer, the tanker broker said.

On January 12, the Indian government made a fresh attempt to bring the freight component of CFR or delivered contracts — where the foreign supplier chartered the vessel – into the service tax net. The new notification removes the exemption given to non-resident service providers of freight.