Nepal has seen a slowdown in exports and imports of goods to and from third countries via India for the last days due to confusion created by implementation of goods and services tax (GST) in the southern neighbour. The pace of imports and exports of goods had slowed down few days before implementation of GST last Saturday and has not picked up since, as Indian customs offices are still upgrading their IT systems, delaying movement of goods, according to freight forwarders.

“Many customs offices are making the IT system compatible with the new tax regime. This is delaying clearance, and thus movement, of goods,” Rajan Sharma, former president of the Nepal Freight Forwarders’ Association, said.

GST is an indirect tax which India introduced on Saturday to replace multiple cascading taxes levied by the central and state governments. It is levied on every transaction of goods and services, except on exempted goods and services, goods that are outside the purview of the new tax regime and transactions which are below the prescribed threshold limits.

Since GST is a consumer tax and is applicable on sales of goods and services in India, it should not have affected trade with Nepal. “But many Indian customs officials are still not familiar with the new tax regime. This is affecting movement of Nepali cargoes to and from India,” said Sharma. Delays at Indian customs points affect Nepal’s external trade, as the landlocked country relies mostly on the southern neighbour’s port in Kolkata to import and export third-country goods.

“What is even more worrying is that cargo handling costs have gone up since the implementation of GST,” Sharma said. The authority at the Kolkata Port earlier used to impose 15 percent logistic service charge on goods imported from third countries. With GST coming into effect, that charge has been raised to 18 percent, according to Sharma. This is expected to make goods imported from third countries expensive.

Since GST’s implementation, the Kolkata Port authority has also started imposing 5 percent service charge on Nepali products exported to third countries. Previously, no service charge used to be levied on Nepal’s exports, according to Sharma. This is expected to make Nepali exports expensive as well.

Considering these repercussions, Nepal’s Ministry of Commerce on Monday wrote to the Indian government urging GST waiver on Nepal bound goods.

“The request was made through the Ministry of Foreign Affairs,” Commerce Secretary Naindra Prasad Upadhyaya said, adding, “Trade and transit treaties between the two countries also talk about providing free transit route to a landlocked country.”

Officials of the Birgunj Customs Office, from where most of the third-country goods enter Nepal, meanwhile, said GST’s implementation has had nominal effect on Nepal’s external trade.

“Only shipments of cosmetics and related items have been affected so far,” Santosh Yadav, information officer at the customs office, said. According to him, the customs office collected Rs350 million in revenue on Monday, which is similar to that of normal days.