By Raaja Kanwar
The importance of the Goods and Service Tax (GST) bill being passed for the Indian economy cannot be over stated. It is estimated that the GST would boost GDP by 2% a year and help in combating inflation. The political parties and all other groups concerned in the decision-making should do the needful to implement the GST by 2016. Further delay in its implementation will be a lost opportunity in terms of growth. The political deadlock in the house cannot have sufficient justification of any reason when it comes to the neglect of passing the bill on GST.
Simple Benefits of GST
As per a World Bank report, implementing the GST would increase productivity and raise efficiency levels in the logistics sector and the overall economy. Overall, it could cut freight times by 20-30% and lower logistics costs by a more than substantial 30-40%. India’s key manufacturing sectors would receive a competitiveness boost equivalent to about 3-4% of net sales, helping in high growth and enabling job creation along the way. Recently, the RBI Governor, Raghuram Rajan, threw his weight behind the bill saying the GST would ‘unify the nation’. However, whether the bill sees the light of day in the winter session of parliament remains to be seen. The whole state of affairs is indeed a disappointment given the opportunity portended by the bill.
Current Tax System
Currently, the tax system is complicated due to the multi- layered system of the government, with both Central and State governments having the power to impose taxes. The goods that move across the country are levied with taxes at different rates. The reviewing and examining of freight that takes place at every inter-state checkpoint by the state authorities not only causes delays but also results in the same freight getting taxed multiple times. The present tax system increases the overall cost incurred by a logistic service provider and is universally considered a hindrance by those in the logistics industry.
Restructuring of Logistics Sector with GST
The decrease in logistics costs that will accompany the implementation of GST will raise competition levels to a new high in the sector. Small and unorganized players may tie up or collaborate with the medium sized and big players in the organized sector. These changes will help the unorganized players survive the competition and big players will possibly benefit as they would look to increase their network or reach through such collaborations. The result would be an efficient and collaborative usage of existing infrastructure assets for all.
Restructuring of Warehousing Sector with GST
With the huge investments expected to be pumped in to building the right logistics infrastructure, the industry’s warehousing structure will change drastically. The development of large hubs in key locations coupled with smaller spoke warehouses closer to production and consumption centres are expected to emerge following the rollout. The regulatory reforms under GST shall replace around 15 state and federal taxes and other tariffs with a single tax at the point of sale. It would also be the
largest driver of modern warehousing infrastructure as this will lead to efficient tax administration, improved logistics, transparent dealings, digital compliance, faster and efficient clearance of goods at ports and dry ports. Therefore, harmonization of tax rates and administration across states will bring about significant gain in minimizing distortions and reducing compliance cost for taxpayers.
Simplifying the tax structure and bringing in GST will usher in a new era of growth and prosperity and will be a significant turning point in the history of taxation in our country. Since the beginning of the great recession in 2008, India, with its consumer-driven economy has had ample opportunities to keep pace with and surpass China’s economic growth. So far, all those opportunities have been missed because of inadequate reform and a lack of political will and consensus. Today, with China finally showing signs of slowing down, India seems to be moving steadily ahead. Introduction of GST can consolidate this trend and ensure India’s economic expansion domestically. The Prime Minister’s ‘Make in India’ vision may also materialize into something more tangible. Opportunities abound, but they must be taken and the GST Bill should be implemented at the earliest.