Quick Guide: Understanding Freight Charges on GST Invoices

When it comes to managing freight charges on invoices, a Goods and Services Tax (GST) is charged to the purchaser of the goods. Taxes are then payable to the government from the business that is selling the goods.

The GST is a complete indirect tax levy on the sales and manufacturing of the consumption of goods and services. Where goods are consumed, tax is collected. Over 150 countries pay a GST destination tax.

Indirect tax is collected by one entity in the supply chain, generally the retailer or the producer of the sold goods. The indirect tax is passed to the consumer as part of the purchase price of the goods. Taxes paid to the government are considered direct taxes.                

GST Invoices and How They Are Charged

GSTs are typically charged on freight bills, and when taxable goods are shipped charges will be taxed based on the tax rate of the supply of goods. The GST rate will be higher on the freight portion of the bill than the rate of goods supplied.  

When shipping is listed separately on the freight invoice, it is not taxable. However, handling charges are taxable. Thus if you combine shipping and handling on an invoice, shipping will then be taxed.

Since the U.S. does not have a national sales tax system there is no standard tax rate. Therefore, each state has its own definition of what is tax-collectable. In other countries (such as India), combining taxes at the central and state levels help mitigate double taxation and complex classification issues.

Goods suppliers are generally responsible for the GST. However, when importing goods, the tax can be classified as a reverse tax. When working with a third party vendor, they may pay the taxes.

GST and Third Parties

Third party billing occurs when the shipper and the consignee are not responsible for freight charges. When a third-party is involved, two Bills of Lading (BOLs) are typically produced. The first BOL is from the original supplier of the goods, while the second shows the origin of the goods, and who supplied them. The third party will appear as the consignee.

When there is a movement of goods, in the direction of a third party, the place of supply is considered the principle place of business, regardless of the location of the delivery of goods.

Simplifying Freight Billing Procedures

Using a freight back office service provider can simplify freight billing and processing tasks. This greatly reduces operating inefficiencies, and decreases costs – sometimes as much as by 40%. There is often a noticeable improvement with the accuracy in billing entry processes, further enhancing faster turn-around times for carriers. An added benefit of streamlining the freight billing process, is that it lets you focus more on customer service.

Are you ready to simplify your freight billing? Reach out today to learn more about our freight billing services and knowledge-based solutions so you can spend more time on less tedious tasks!