Complete phasing out of central sales tax and dismantling of check-posts key to realising full benefits
Crisil Research has said that the rollout of Goods and Services Tax (GST) will reducelogistics costs of companies producing non-bulk goods by as much as 20%.
The research firm said, “To maximise benefits from the rollout of GST,a complete phasing out of Central Sales Tax (CST) (currently paid for inter-state movement of goods) and dismantling of state-level check-posts are imperatives.”
Prasad Koparkar, Senior Director, CrisilResearch: “Manufacturers of non-bulk goods spend about 5-8% of sales on logistics. GST will save warehousing costs of 1-1.5% of sales in 3-4 years. Eliminating check-post delays will yield additional savings of 0.4-0.8%, thus taking overall savings to 1.5-2% of sales. But this will be gradual and back-ended as companies will have to realign supply chains while ensuring minimum business disruption.”
The government has proposed to levy an additional 1% tax of supply of goods for two years in lieu of CST. Crisil said, “We believe this is against the core principle of GST, and will defer full benefits of the roll-out. This will also delay the dismantling of check-posts so critical to ensure faster transit of goods. Today, a considerable amount of journey time – estimated at a quarter – is spent at check-posts and city entry points, which add to the cost of transporting goods, and forces companies to maintain buffer inventories.”
Crisil Research’s assessment shows the consumer durables sector will be the biggest beneficiary of GST, potentially saving 30% of logistics costs from current levels of 7-8% of sales.
The research firm said that for FMCG and pharmaceutical companies, cost gains may be a relatively lower at 15-20%. “That’s because both tax and logistics considerations have dictated their decision-making on warehousing. Given that stocks need to be replenished quickly, warehouses are located closer to distributors. So consolidation will be more calibrated and gradual,” Crisil said.