Reuters - Overseas exporters chartering foreign vessels to supply goods to India will have to pay a service tax on freight from Sunday, a government notification said.

It will be the same as the 4.5 percent service tax that India currently levies on free-on-board (FOB) cargoes, where the ship is chartered by a local buyer.

Prior to the change, imports in foreign ships hired by the overseas seller - known as on a cost and freight (CFR) basis - have been exempt from this charge.

The difference in tax rates has affected the business of Indian shipping lines such as Shipping Corp of India, Great Eastern Shipping Co Ltd and Mercator Ltd.

"This will provide a level playing field to Indian shipping companies ... there will be no major impact on importers as most of the service tax is refunded as credit under a (government) scheme," said L.K. Gupta, chief executive at Essar Oil.

India, the world's third biggest oil importer, ships in about 80 percent of its oil needs. The South Asian nation also imports fertilisers, precious metal, coal and steel among other goods.

Photo - A stacker prepares to stack a container at Thar Dry Port in Sanand in the western Indian state of Gujarat January 3, 2011. REUTERS/Amit Dave/Files