Courtesy: BY CA HEMANT P. VASTANI
Indian Logistics Industry is expected to grow at a CAGR of 8.6 percent between 2015 and 2020, which grew at a CAGR of 9.7 percent during 2010-2015.
Transportation and Communication accounted for 7.0 percent of the nation’s GDP in 2015, accounting for around US $130.44 billion.
The Indian logistics industry is fragmented and under developed. Logistics costs are relatively high due to poor physical and communication infrastructure; high dwell time at ports; low levels of containerization; and a multi-layered tax system contributing to significant delays at border crossing points.
With GST Government reform initiatives, promotion of manufacturing and trade, improving investment climate are expected to transform the industry and drive growth between 2016 and 2020.
Development of transportation and logistics-related infrastructure such as dedicated freight corridors, logistics parks, free trade warehousing zones, and container freight stations are expected to improve efficiency.
IMPACT OF GST IN GENERAL
INCREASE TAX BASE :
GST is a multi-stage tax, it provides for an input tax credit mechanism, and since every link in the value chain, including dealers and distributors, will require evidence of compliance by its preceding link to claim the required set-offs, it is likely to broaden the tax base byincreasing voluntary compliance.
GST WILL BOOST DIRECT TAX:
GST implementation is likely to result in lifting direct tax collections as: (1) GST payments by tax-payers will be linked to their respective Permanent Account Number (PAN); (2) the National Securities Depository Limited (NSDL), which maintains the Tax information System (TIN), will also look after the GST database. This integration of the indirect tax system with the income tax system will enable authorities to triangulate information, thereby automatically leading to improved tax buoyancy.
ADVANTAGES TO INDIAN ECONOMY:
The structural nature of this tax reform is likely to create a better environment for doing business in India over time, which would create a platform for higher economic growth. It will bring down costs within the system, give better control to government on taxation, reduce unaccounted part of the economy, thus adding to government resources. This benefit could be then used to fund India’s development and increase its competitiveness within the global economy.
INFLATION IN THE INITIAL STAGE:
Implementation of the GST in the near-term could bring some upturn in inflation; however, the impact should be transitory.
IMPACT OF GST ON LOGISTIC COMPANY
Goods and Services Tax (GST), which promises to integrate India’s multi-layered indirect tax system into a single unified one, unshackling India from its bureaucratic web and improving the ease of doing business.
Logistics companies in India have evolved over the years from being mere first-party logistics providers (1PL) to second-party logistics providers (2PL) to integrated fourth-party logistics providers (4PL) by providing a complete package of logistics services, including transportation, warehousing, pool distribution, management consulting, logistics optimization, etc. and complementing them with advanced supply chain facilities.
MODEL OF LOGISTIC INDUSTRY AFTER GST
The proposed goods and services tax (GST) will help companies reduce logistics cost by redesigning their supply chains with four key structural changes
- India becomes one big market, there will be fewer and larger warehouses.
- GST will result in larger trucks on road while the overall number of vehicles will go down. The new tax will result in greater adoption of a hub-and-spoke model in segments such as warehousing, cold chain, container freight stations and inland container depots.
- GST will also bring in scale to logistics companies as there will be a lot of savings, stoppage of wastage and lower delays,
- These above changes will lead to greater economies of scale for transport operators and lead to more companies outsourcing their logistics operations.
ADVANTAGES OF GST TO LOGISTIC COMPANIES
COST / TIME SAVING:
Bigger warehouses and end market driven logistics planning is likely to result in meaningful costs savings over time. On account of entry taxes and heavy paper work at state check posts, there is an additional 5-7 hours added to the transit time for inter-state transport of goods. Abolishment of entry tax and easier tax compliance procedures is likely result in easier movement of goods across the country.
FORWARD INTEGRATION :
As these companies gather scale, that will enable them to offer services at lower costs. As a result, companies for whom transportation is not a core part of their business will increasingly outsource their logistics operations to third party logistics (3PL) and fourth party logistics (4PL) service providers.
Standard tax rates will allow corporations to move away from the practice of building a warehouse in different states to adhere to each state’s tax code. A big packaged consumer goods company could thus make do with one large mother warehouse at critical points in the country and employ logistics companies to manage distribution and supply chains
DISADVANTAGES OF THE PRESENT SYSTEM
State-border checkpoints, which are tasked with material scrutiny and location-based tax compliance, negatively impact the overall production and logistics time and account for roughly 60% of a truck’s transit time.
DEMAND OF THE LOGISTIC INDUSTRY
After much deliberation, petroleum has been brought under the purview of GST but it will be exempt until a date announced by the GST Council. For logistics industry, petroleum is one of the major inputs and it would be a welcome move if petroleum were to be ‘non- exempt’ right from the start. This would enable logistics companies to avail credit for the petroleum used in the course of providing logistics services.
ADVANTAGE OVER RIVAL( due to predictability )
With GST when all check posts are gone, a truck that departs from Kashmir to Chennai ,will reach on time. Goods will be delivered on time. Predictability levels post GST will significantly improve. For Example if you are moving goods by air ,the price differential between air and road is nearly one-eighth. Once logistics manager sees that he can manage his inventory in a manner where it gets more predictable by road, people will switch more volume by road.
MAIN CUSTOMERS OF THE LOGISTIC INDUSTRY
- Healthcare and pharmaceutical industry.
- Auto and auto components industry
- Lifestyle and ready made garments,
- High tech, engineering and
- Mobile telephone including base towers and mobile telephones.
GST has the potential to accelerate growth in the logistics industry. However, its complete impact can only be understood after the announcement of the final GST Law and Rules.
With GST’s imminent implementation, the logistics industry should start exploring different supply chain models with their clients and at the same time develop a completely synchronized ERP accounting system to support inventory supply management as required under the GST regime.
GST is the game changerfor the logistics industry and the industry is eagerly awaiting for the rollout of GST.