GST – Impact on logistics Sector

Logistics is an integral part of the entire infrastructure in any developing country. A more efficient logistics industry will be very essential for Indias economy to accelerate, and GST could facilitate smoother and better transport. It will replace the age-old, cumbersome and inefficient transport system that was built around individual state taxation system. Logistics should ideally make core operations more efficient, but it is caught in the complexities of compliances and regulations. With a single point taxation under GST, checking and tracking of sales tax at inter-state barriers would not be necessary. According to a recent survey, if the waiting time of trucks is reduced by 50%, it would add 8% additional trucks on the highway.

Logistic players are keeping an eye on the roll out of GST (Goods and Services Tax) this year. The supervisory reforms proposed in the GST presents a golden prospect to revisit, rationalize and re-engineer logistics networks in India. If GST is implemented by July 2017 interstate sales transaction will become tax neutral and the entire country will come under one single market without any state borders tax. Under GST, there will be efficient inter-state transportation and rationalization of paper work for road transporters which will reduce logistics’ costs as taxation will be done at a national level and not by each state.

Currently, the logistics industry is largely unorganized and scattered due to the tax structures at the state level. The present inter-state system of transport taxation has compelled organizations to put up warehouses in every state, thus making the supply chain longer than usual and therefore to a large extent inefficient. Currently, there are around 20-30 warehouses per company, one in every state, in addition to this 20-30 Carry & Forwarding Agent per state make the supply chain longer and inefficient. GST tax will be imposed on transportation of goods and full credit will be available on interstate transactions.

Given the complex structure, the transport industry ends up spending almost 50-60% of its time and resources on tax compliance, together with trucks queuing up at interstate check points for tracking and inspection of inter-state sales tax. Currently, state governments maintain a number of forms for recording the movement of goods in and out of their jurisdiction. Present processes also necessitate the transporters to carry hard copies of the invoice and forms along with them.

The new law will replace various different taxes that the Centre and State governments charge separately. This would translate into:

•    Increased uptime for trucks

•    reduced idle hours

•    Quicker turnaround times and more optimized warehousing structure

According to a report by the Ministry of Road Transport and Highways, a truck typical spends nearly 16% of the time at check posts. A truck in India covers an average annual distance of only 85,000 km as compared to 150,000 to 200,000 km in advanced countries. The GST would eliminate delays and long queues that are often seen at check posts on state borders. There would also be simplification of the documentation process that is needed for transporting goods across India.

Under the existing regime, big corporate do “stock transfer” to other states having logistics and infrastructure, therefore they escape paying tax on interstate movement. But, owing to lack of infrastructure, SMEs and startups are unable to do that and get goods through inter-state sales (instead of stock transfers) and end up paying Central Sales Tax on them. In this respect, GST brings SMEs and startups at par with big corporate by taxing stock transfers as well.

Today, logistics includes transportation and warehousing, along with distribution and optimization. The GST tax will be operational on transportation and full credit will be provided on inter-state transactions which leads to concentrated mega logistic chains. This will eventually lead to centralization which will make the process of claiming and utilizing credits easier. In addition, tax compliance issues will get resolved.

GST has the potential to accelerate growth in the infrastructure of the country.  However, the whole impact can only be analyzed after the announcement and implementation of the final GST laws and rules. With the implementation of the new tax structure, logistics companies would start exploring new opportunities with different supply chain models.