One of the budgetary proposals is the increase in TDS rates under Section 194-H, from 5.61 per cent to 11.33 per cent for commission and brokerage, with effect from June 1,2007. This provision is likely to eat into the cash flow of the forwarding industry.
The forwarders' main source of income on export freight is the International Air Transport Association (IATA) commission, which is given by the airlines for the bookings done with them by the forwarders.
Already, the forwarding industry is working on tight margins due to extreme competitive and pricing pressures.
With the doubling of the TDS rates, the airlines are bound to deduct twice the existing TDS on their commission payout to forwarders, and this may result in grave cash flow problems for forwarders.
To overcome this, they are likely to raise prices due to likely interest payouts.
With meagre margins and the new TDS structure, forwarders are in a Catch-22 situation. This anomaly needs to be corrected.