INDUSTRY OPINION:

Travis Brooks-Garrett* - Melbourne

February 13 2017 - 15:00:00

INTERNATIONAL trade taxes as a percentage of revenue have fallen globally from approximately 8% in 1997 to 4.1% in 2013 (ref: World Bank). But 2017 is a new year and nouveau-protectionism is making its presence felt.

On January 12th, 2017, the Indian Ministry of Finance imposed a 4.5% service tax on all prepaid freight for cargoes landed in India after January 22nd. Notices were received by FTA/APSA members from shipping lines including OOCL, CMA CGM, Hamburg Süd, and Hapag-Lloyd. While the rule was introduced on January 22, some shippers received notices from their shipping lines the following day. The Department of Foreign Affairs and Trade (DFAT) were unaware of the introduction of the new rule, despite Australia being in the middle of free trade agreement negotiations with that country, and no forewarning was received by industry. Since then, FTA/APSA has been working closely with DFAT's India section and we commend the Department on their active response to this issue.

For an Indian Government that was intent on reducing barriers to trade, this was an inflammatory move. One APSA member, a large grain shipper, described it as "a significant cost that will have a big impact on all of our products shipped to India". Australia, along with a host of India's major trading partners, are closely examining the amendment against India's World Trade Organisation commitments.

In the meantime, there's a tax to be paid. So who is liable to pay the tax? The advice that APSA received from our legal counsel is that the shipping lines/carriers are the service providers (located in a non-taxable territory) and they provide the service to the shippers (person receiving the services who are also located in a non-taxable territory). The service provided is the transportation of goods by vessel from a place outside of India up to the customs stations of clearance in India. Entry 12, makes it clear that the person receiving the service will pay 100% of the tax – that is, the shipper. However, the person ultimately held liable for paying the service tax (other than the service provider) is the person in charge of the vessel, as this is the person in India who must comply with sections 29, 30 and 38 read with section 148 of the Customs Act 1962.

In other words, the carrier is responsible for collecting the tax from the shipper. Failing that, the carrier potentially exposes itself to paying that tax. The International Federation of Freight Forwarders Associations has been strong in its opposition, calling for shippers to reject the tax. They have submitted that the rule allows for the recipient of the service- the consignee- to pay.

Moreover, Australian shippers have expressed a concern to FTA/APSA and DFAT that shipping lines may intend to apply administration/collection surcharges in addition to the 4.5%. Any imposition of surcharges will be monitored closely.

This is a live issue and FTA/APSA will continue to provide leadership with DFAT and other stakeholders on behalf of industry. Unfortunately, major changes to international trade tax regimes are not limited to the sub-continent. It was reported last week that the US Government is considering replacing an existing tax on corporate income with one linked to turnover, allowing firms to deduct for 100% locally manufactured goods, but not imported products.

Essentially, a de facto tax. It was reported that such a move could be in breach of Article 3 of the General Agreement on Tariffs and Trade, under the supervision of the WTO. But, with the US Government on a mission to reduce their trade deficit, that may be a risk they're willing to run.

In the last two weeks FTA/APSA has been swamped with examples of increasingly protectionist behaviour and de facto taxes. In one example, a member has highlighted increased fees with Middle Eastern countries, particularly for the "legalisation" of Chamber of Commerce Certificates of Origin and exporter invoices. Oman has increased their rates for an export over USD100K from a previous USD160 to USD680, while Qatar is charging up to 0.4% of the invoice value.

The WTO is close to ratifying the landmark Trade Facilitation Agreement (TFA), the intent of which is to simplify and harmonize international trade procedures across borders. Let's hope that the TFA delivers on its promise.

In the meantime, FTA/APSA will continue working closely with DFAT and other agencies to provide updates on this and other issues.

NOTE: this is a private opinion and does not necessarily reflect the views of Lloyd's List Australia

* Travis Brooks-Garrett is a partner at Freight & Trade Alliance and Australian Peak Shippers Association Secretariat

LloydsList Australia - Tax man cometh as shipping lines to collect foreign tax

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