GST – Revolutionizing The Logistics Sector

By Registrationwala

12th April 2017

 

GST is set to bring forward the most talked about transformation in Indian history. It’s been a decade that the GST terms are being talked about, but now the time has come to action it. GST promises a holistic development in all sectors, one of the beneficiary of this change is the area of logistics and warehousing in India.

This reformation is going to work hand in hand with the Make in India campaign started by our Hon’ble Prime Minister. Simplifying taxes and facilitating changes in the procedures will ease the way business are operated and encourage interstate commerce in country.

India is one of the fastest growing economies in the world and the logistics sector has been a contributing factor to the same. Factually, Indian Logistics sector is expected to grow at a CAGR of 8.6 percent between 2015- 2020, during the period of 2010 – 2015 Logistic sector has already shown a remarkable rise in graph with a recorded growth of 9.7 CAGR.

With due respect to the rapid development of Indian Logistics one must not neglect the fact that the condition of Indian Logistics still needs significant attention.

Logistic sector in India has faced bottle necks in its journey towards progress in forms of

  1. Trade regulations
  2. Unskilled labour.
  3. Underdeveloped infrastructure.
  4. Technologically deprived / laggard behaviour.
  5. Absence of well-equipped warehousing and storage facility.

These roadblocks to progress will be addressed by the new GST reform. Apart from addressing the issues this new reform also promises measures that will facilitate delivery of goods on time.

GST – a boon to the L&T sector.

With the implementation of this GST bill comes along with a sea of changes, in many peripherals of the logistics and warehousing sector. These changes can be witnessed in the following areas.

  • Revalued tax rates

GST brings along a revalued tax rate which is set to affect the mass business to business (B2B) suppliers. Since GST is a multi-stage tax one can expect an increase in the indirect tax rates such on freight rates, rentals and service charges to be precise. The current system complies with 15% service tax as opposed to 18- 19% tax rate suggested by the GST bill.

Despite the revaluation of the tax base, this change will not directly affect the logistics industry as the bearer of this cost will be the end consumer.

This is also going to restructure the procurement chain between suppliers and manufacturers. With the current taxation policies many companies make use of third party logistic providers, with the advent of GST many larger players would prefer having their own fleet of vehicles. By adopting this idea larger players are saving themselves the cost of paying the third party intermediate.

Also to be noted the third party services will not be completely throw off the chain, they will still be in high demand when companies want to procure spares and other essential under emergency situations.

Third party logistic service providers can function as they are currently functioning with little to no threat to their area of business.

The intermediaries are still needed at large to cater to the business to consumer (B2C) community as the consumers will discourage the idea of making large capital investments which they have to pay a price off. The position of the third party logistic providers here, hence remains undeterred.

  • Readily available tax credit.

As GST absorbs all the taxes within itself it has provided a scope for better tax credit across the value chain. This will in turn prevent tax cascading.  The logistic providers can now balance their GST liability against credit received on consumption of any service which also includes purchase of goods and capital assets.

Other Changes to look forward to

  • The implication of GST in logistic sector will help to ease the burden of interstate taxes that is currently prevailing in our tax system. There will be a uniform tax rate without any variation across 29 states in India.
  • The prevalence of unorganised players in the logistic sector will be curbed with the introduction of the new bill. The current fragmented sector will see a major consolidation which in turn will witness a systematic sector plan laid out by large players. Thus progressing towards making L&T an organised sector.
  • As per the estimate made by the World Bank, Indian corporates can increase their operational efficiency but addressing the 30-40% cost incurred while stopping the vehicle at various tolls and check post. GST will bring about a time efficient measure that will help in quicker delivery of goods and cost will be saved during transit.

GST’s impact on warehousing in India

The current taxation system is not interstate business friendly, the stringent checks and excessive tax payments has forced many companies to function through multiple warehouses throughout India. This is an additional cost, as with 20 – 30 warehouses being maintained by each company across India. To maintain these 20-30 ware houses there are multiple carry & forwarding agents who crowd the market making it longer and inefficient.

With implication of GST tax will be levied only on transportation of goods while making full credit available on interstate transactions. The major players can expect a significant drop in logistics cost varying from 1.5% to 2%.

Instead of having multiple warehouses across the country, there will be fewer and larger warehouse equipped to lower the cost of inventory. This will also help them avoid corporate sales tax which is 2% as the interstate tax fades out of the system.

Logistics cost reduction.

  • GST is set to disband indirect tax structure which involves a layer of multiple tax system which is divided into centre and state taxes respectively. This will eventually lead to reducing logistics cost at about 20%.
  • A visible reduction in the number of vehicles carrying goods on road will be witnessed. Larger trucks will promote more business and prove to be cost effective.
  • Logistics companies will be on top of their game as there will be lower delays in delivery of goods.
  • Wastage of vehicles will also be under check as cost saving measures will be promoted.

Conclusion

In conclusion, it can be foreseen that the GST bill looks promising for holistic development of the country. The bill provides room for logistic industry to optimize their operational efficiency by dissolving unnecessary taxes and promoting cost effective measure to expand their business beyond geographical boundaries.

This is also to promote the emergence of logistics players as an organised sector. By doing so GST is set to unravel the new era of organised logistics sector with world class infrastructure that invites investments from across the globe.

 

 

GST – Revolutionizing The Logistics Sector

2017-04-12