of GST by and large is welcome by the analysts though they point out initial
teething problems across all the sectors, in the road sector which is the
massive part of the logistics. In the long run, they say, the operational
efficiency will improve from the existing condition; VAT being replaced by GST
will lead to redesigning supply chains to take advantage of scale economies as
well as to giving birth to best practices relevant to the industry. Another
great benefit of GST is reduction in logistics cost which happens to be one of
the primary aims of the Central Government. It will prove, ultimately, Good
Simple Tax. Hope you understand.
Below we give
the comprehensive analysis of GST and the consequences of its implementation by
Pushkar Singh who is the Co-founder and Director of LetsTransport.in. A ‘Last Mile'
logistics solutions provider that is reliable, professional, economical and
structured to serve businesses as well as consumers. In his current capacity,
he holds the responsibility of handling the strategy and operations of his
Industry experts say that the Indian
logistics and transportation sector is one of the main beneficiaries of the new
GST regime. Let us look at some figures - Indian logistic market is
projected to reach$307 billion by 2020. Presently, the logistics segment
includes four major segments – transportation, accounting for 60 percent, warehousing,
accounting for another 24.5 percent and freight forwarding and value-added
logistics, the remaining piece. A report by Care Ratings estimated that the
Indian logistics industry is likely to grow at a CAGR of 15-20 percent between
2019 and 2020 and GST alone will reduce the logistic costs by up to 20 per cent
from the present levels. The logics sector in India is currently valued at $130
It is common knowledge that the growth
of the country’s GDP is directly proportional to the transparency in its
logistic system. The logistics industry contributes 13-14 percent to India’s
GDP, whereas the global average is 8-9 percent in the developed economy.
Transportation is the very crux and the enabler of economic activity and a
facilitator for trade. The higher the trade and movement of goods across the
market, higher will be the GDP. GST promises to negate many flaws plaguing the
logistics sector and will revolutionize the landscape – this would help in
disentangling the tremendous potential that the logistics sector offers, by
incorporating a channelised and efficient goods transport system.
faced by the industry
Falling operational efficiency is one of
the reasons, impacting the overall health of the segment, transportations costs
etc. Other hurdles are complicated networks, high coordination costs across the
country, amalgamated with inadequate infrastructure, entry taxes and poor
vehicle-load-carrying capacities, resulting in delays and damages.
Moreover, in the pre-GST regime, the multitude
of taxes had made logistics an unwieldy and expansive process. As a corollary,
logistics firms installed hubs and transit points in many states to avoid the
state value added tax (VAT)—goods directly supplied to dealers costs state VAT
whereas transfer from warehouse is treated as stock transfer and do not—and
also take advantage of demand seasonality across the country. However, this
resulted in further complications and a lack of clarity for businesses, leading
to allegations of tax evasion.
The ecommerce space with its marketplace
model bears the brunt of these complaints. Amazon was recently pulled up by the
tax department of Karnataka, for allegedly allowing sellers to register
fulfilment centres as additional place of business. The state cancelled the
license of several small merchants registered on Amazon. The ecommerce
companies contend that laws have not kept pace with new age business models.
Many states, like for example Telangana is wooing companies by promising them
streamlined and transparent taxation policies.
Impact on the
The sector is benefiting hugely from the
recently rolled out GST regime. Pre-GST, the complex tax structure and
humongous paperwork forced the industry to spend a lot of resources on tax
compliance and deposit of interstate sales tax. Monitoring of sales tax at
interstate check posts caused major traffic congestion at these points,
resulting in slower movement of freight and passenger, and consequently higher
costs and pollution. An average Indian truck covers only about 50,000-60,000
kilometre a year as against 3 lakh kilometre done by a truck in US, thanks to
horrific traffic jams.
GST has rendered inter-state check posts
redundant. This has reduced the travel time of long-haul trucks and other cargo
vehicles by at least one-fifth. This, combined with the proposed e-way bill
will require online registration for movement of goods worth more than Rs
50,000. This will simplify the movement of cargo further, and bring in more
transparency in the whole process. Easy and hassle-free movement of freights
will increase the demand for high-tonnage trucks, which will in turn reduce the
cost of transportation of freight.
Additionally, a single tax or GST also
means an optimized warehousing structure. Previously, companies had to keep
warehouses in every state due to multiple tax slabs. This mean a leaner and
smarter logistic chain. GST will also attract more investments in the
warehousing business. Hub and Spoke model will emerge. The trick is to maximise
supply chain efficiency by keeping taxation at the very pivot.
In the pre-GST era, the statutory tax
rate for most goods worked out to about 26.5 percent. Post GST, this has
reduced to 18 percent tax range. India has a very high logistics cost about 14
percent of the total value of goods as against 6-8 percent in other major
countries.GST will serve to bring down the logistics cost to about 10-12
percent by facilitating efficient inter-state transport of goods and
catapulting the demand for logistics services.
Minister of Road Transport &
Highways and Shipping, Nitin Gadkari went as far as to state that, GST will
reduce transportation costs by about 20 percent.He also committed that logistic
parks will be established at various places across the country to function as
freight aggregation and distribution hubs. These logistics parks will
facilitate long haul freight movement between hubs on larger sized trucks, rail
and waterways. This will not only reduce freight transportation costs, but will
also throw open many employment opportunities and bring down pollution levels.
How Smooth or
difficult the transition is?
The transition has been quite smooth. It
is a fact that initially there will be an increase in compliance and adjustment
costs as the frequency of filing returns will increase and the input tax credit
will require compliance of each and every player in the entire value chain.
This will also lead to a few uncertainties that would affect the profitability
of the sector in the short run. However, in the long run, operational
efficiency is bound to improve by great measures. Crisil has also clearly
stated that GST will reduce the logistics costs of companies producing non-bulk
goods by as much as 20 percent.
GST will benefit all industries alike
and would also help the center and the states to increase their tax
collections. That would ring a death knell to inspector raj. GST will also
reduce the scope for a parallel economy leading to curbs on the generation of
black money. It is a win-win situation for businessmen, consumers, State
Governments and the Centre.
Is the time
given for filing GST is enough as we are still under a transition
The Government had given six months’
notice before rolling out GST on July 1. The date of the first filing of return
had also been extended to September 15, from August 10 as was stated earlier.
This is ample time for people to file their returns. Out of 80 lakh,65 lakh
assesses in the current indirect tax system have already registered themselves
for the GST.