Rebuilding Domestic Air Cargo Sector: In discussion with DACAAI

0
4558

In a virtual interaction with Domestic Air Cargo Agents Association of India (DACAAI)’s senior-most members, CARGOCONNECT intended to identify the dilemma of the problems that the association is facing, which also led to perceiving other underlying issues that revealed more than one root cause to the many contributing factors. Excerpts from the intriguing discussion that helped in assimilating significant findings!

Founded in 2009, DACAAI acts as the central coordinator with airlines, cargo terminal operators, government and various agencies with the aim to enhance co-operation and process efficiency that will lead to growth of the domestic air cargo sector in India and welfare of the agents and industry at large.

As a nodal agency, providing valuable insights, with a renewed focus on educating and guiding agents and the sector to prosper through these difficult times, DACAAI has consolidated some key concerns and recommendations to the government.

Roll-back GST on bad debts during COVID-19

India’s air cargo sector is definitely one of the worst-hit as a result of the unsettling pandemic and against a backdrop of already-weak credit measures. The mandatory four months nationwide lockdown has further pushed the sector towards losses and downturnsin core business activitiesdue tomarket and earnings slumps.

Even though the supply of pharmaceuticals, medical equipment and other essential commodities continue as per directives of the government considering it is the need of the hour, the credit downturn caused by COVID-19 has been abrupt and severe, with a tremendous impact across the country’s domestic air cargo sector.

The consensus among industry experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021.

At such a time, domestic cargo agentsareliterally struggling to survive as they are having to continue pay GST on invoices for which they hadn’t even received the payments. As a result, many domestic agents/vendors are now on the brink of bankruptcy.

As per provisions under GST law, agents have to pay 18% GST on invoices up front, but the coronavirus pandemic and consequent lockdown have led to an increasing number of cases of bad debts. DACAAI informed they have not received payments for services provided to clients, leading to huge losses for members of the association. The worries seem to accentuate as customer defaults are on the rise due a general breakdown in business payment cycles.

“On one side, there is no business for the past two and a half months, and on the other, due to lockdown, we are not getting payments from our clients for services provided to them,” says Hemant Anand, Executive Body Member of DACAAI. “This situation puts us in double jeopardy and our members are suffering huge losses.”

The value of supply of goods or services is transaction value, which is the price actually paid or payable for the said supply of goods or services. In the case of bad debts, the amount payable remains the same, however, it is just that it is not realised. These assertions would not change the taxability component in the transaction; thereby no tax reversal can be taken out of bad debt.

Domestic cargo agents are unanimously urging the government to reverse back GST paid on bad debts, as it would provide some relief to them and it’s a matter of survival. This, of course, will all be possible only if government has a liberal outlook towards unconventional policy measures.

“Our members are facing huge losses and lack of working capital as our payments are not forthcoming, and that we are unable to reverse the GST already paid on bad debts,” stresses Suraj Agrawal, General Secretary for DACAAI. “We urge the government of India, GST Council and all concerned that GST paid on bad debts should be re-credited back into our account. Either Government should consider charging GST only after the payments are realised or refund such GST back to us.”

When we talk about the global scenario on tax relief, it is much more balanced in case of bad debts whereby quite a few tax jurisdictions do not collect taxes on the component of unrealised payments. For example in the USA, States usually provide sales tax relief for tax remitted to the states on the amount that later becomes uncollectible. In Germany, bad debt relief is given if the customer becomes insolvent. Unfortunately, nothing of this sort exists in India.

Facilitate efficiency in movement of horti-agri-aquaculture produce

India wastes 16% of its agricultural produce every year.

In some reasons, agri or fresh produce is surplus and farmers have to sell at a loss. They see produce rot in fields as they rush to find areas of demand and prevent closures.

Meanwhile in other regions, there is scarcity of the same product that is facing a massive surplus in some other region.

Additionally, lack of cold chain and proper storage facility, exports, transportation, adequate processing facilities, and marketing are fields where the government has failed to deliver, leading to wastage of food.

“There is an urgent need for focus and efficient policy implementation by the government for facilitating the export of agri produce like fruits and vegetables as well as aqua products to every corner of the country,” says Amit Bajaj, President of DACAAI.

“There is heavy demand for peas from Himachal Pradesh, coriander from Bangalore, litchi from Patna, pineapple from the Northeast, cherries and apple from Srinagar, and variety vegetables from Kolkata. These markets can grow exponentially with more products moving in and out, if government provides right policies and procedures that support growth in the agricultural marketing setting,” informs Bajaj.

Besides, there is 0% GST charged on transportation of farm produce by road and rail, while 18% if flown through air. “This inflates the cost for the end customer making the movement unviable,” feels Bajaj.

“18% GST should be withdrawn on domestic air transportation of fruits and vegetables and aqua products like shrimps and fish. This would give much needed relief to the farmers, consumers and agriculture produce marketing companies, as well as help to expand the domestic air cargo market,” says Bajaj.

Improve MSME payment cycle

The government recently created a special provision wherein the payment to MSMEs has to be actualised within 45 days to avoid undue distress to them. If a company does not pay an MSME within the aforementioned timeline, the same is declared as a default in the audited balance sheet of the company.

This has improved the payment cycle, but enforcement of the regulation is not up to the mark.

“The corona crisis has hit the liquidity crunch in the MSME sector. During such a time, it is essential that corporate hordes give some breathing space by expediting the release of payments to its vendors, especially MSMEs,” says Gaurav R Ghuwalewala, Executive Committee Member of DACAAI. “The enforcement of 45 days payments is a welcome move and becomes all the more important for the survival of MSMEs.”

“We propose the imposition of 18% tax chargeable as penalty to the government on payments that are made to MSMEs beyond 60 days from the date on which a bill is generated,” insists Ghuwalewala.

This, Bajaj also feels, will critically ensure that payments to MSMEs are cleared within 45 days and also act as a self-regulatory mechanism for improving the cash flow to the MSME sector. “This will help in funding the MSMEs organically, and also bring down the recovery litigations in the court,” explains Bajaj.

“Collection of fine for nonpayment and its use is solely up to the government. The MSMEs are only concerned about receiving their due payments on time. They would be more than happy if the same is facilitated,” says Ghuwalewala.

According to Bajaj, most of the DACAAI agents are small and medium enterprises and are on the verge of closing down businesses due to losses being suffered by them. Furthermore, he pointed out that in the current situation, airlines are insisting that charges be paid in advance.

Not to question, the ‘frenetic’ air freight market has become a ‘pay-to-play market’, and it’s all about deep pockets and whether forwarders/shippers can afford to pay.

“Cash-flow management has always been a concern for domestic air cargo agents. Post-COVID-19, this has become even more challenging. We are sandwiched between airlines – who want advance payment and customers who wish for more credit,” says Ghuwalewala.

Many forwarders were at pains to explain the effects of this and noted that they themselves were not taking additional margins from the high prices.

Additionally, the urgent demand of PPE products has tripled the number of freighter flights from Asia, adding to congestion and delays at airlines. It is recommended to place and pay for bookings at least two weeks before estimated departure dates to secure space.

However, this situation has now stabilised from what was just a couple of months ago.

Signs of hope

Considering the ongoing issue, the government is mulling upon providing a GST relief package to industry’s worst-hit sectors like aviation, air cargo, real estate, etc. that can help to mitigate the impact of coronavirus outbreak and help prop up the economy. The package may consist of a six-month suspension of GST payments for the sectors that have suffered most due to the pandemic.

Other proposals include a switch to a cash-based principle of levying tax from the current invoice-based system and providing GST relief on sales for which payment is not received due to the lockdown by treating those as bad debts. A cash-based system implies that businesses would pay GST to the government when they received the cash in hand not when the invoice is raised.

This may however lead to ballooning of the liabilities on the face of balance sheets, eyeing which certain companies may take an aggressive stand to deny payments to the agents/vendors on flimsy grounds.

Further, the government is looking at exempting the other statutory charges on a temporary basis for the worst affected sectors.

GST Council, the apex decision-making body for the tax, has not given a final nod on the proposal as of now, but is expected to, soon. In the wake of a demand for complete GST exemption, the government is veering around to the view if suspending the tax will work better. Exempting a sector from tax would mean breaking the credit chain, leading to further problems down the line.

Suspension of GST for six months is said to be a good move, if implemented as it will offer some relief to the companies to scale up their business and cope up with the volatile situation.

Most service providers are facing delays in payments from clients but are saddled with GST liabilities. Taxpayers including various companies have been demanding that they should be allowed to pay GST on actual receipts as against on the date of raising invoice as there are huge cash flow and working capital issues.

Liquidity is among the immediate needs of industry, tax experts have also pointed out.

End remarks

One can justify taxing the wealthy or the super-rich and large businesses any time. The paradox is that large businesses and wealthy entrepreneurs can take larger risk, undertake new ventures and create large number of jobs. The cascading impact on supporting and ancillary industry sectors results in both, as a multiplier of jobs and economic output.

For a change, the legislators should give them a pat on their back; let their contribution to the crisis aid come voluntarily. Drive them to strengthen their business models and the environment where they conduct transactions.

The government can give people free food grains from its warehouses, but cannot create enough jobs for them. For private enterprises to create jobs, they should feel good too. They take risk for the ‘lure of profit’. If the government fails to create a conducive supportive environment with profit opportunities for them, we can be rest assured of large-scale job losses.

Take for instance the real estate sector, which creates a large number of jobs for the poorest labourers and demand for several sectors like cement, steel, building material and finance. The housing sector is in dire need of capital, and banks have little risk appetite. This sector is the backbone of the economy and financial system as well. For a limited period, say one year, the government should offer full tax deductionon the value of residential property over five years. It can catalyse the economy’s revival, more than making up for direct tax loss.

With above, considering the global best practices, there is a need to change the psyche of Indian bureaucrats whereby an environment of trust is established for businesses to grow and thrive. Indian indirect tax system needs a thorough look into the provisions to identify and uproot any harsh anti-business stipulations.

LEAVE A REPLY

Please enter your comment!
Please enter your name here