The what and why of GST for logistics
The Goods and Services Tax (GST) Bill, which is expected to turn many things for the logistics sector, is almost on its way to being approved. If implemented in a right way, it can definitely work in favour of the industry.
The Lok Sabha and the Rajya Sabha have approved the GST bill which has the potential to transform the country’s domestic logistics. It is expected to become an official act by April 1, 2017 which will include central excise, service tax and various local levies. This regime is slated to overhaul the present indirect tax regime with the objective of addressing many issues, be it multiple applicable levies, sale of goods and provision of services complied with payment, reporting and audit requirements under different tax authorities, to name a few.
GST will allow companies to operate one large central warehouse, rather than having multiple warehouses. Today the distribution is directly to retail warehousing but with GST there will be hub warehousing.
CARGOTALK finds the right time to discuss with the industry experts on how GST is going to benefit the industry, and what clarity the industry needs from the government about the tax.
Expediting freight movement
Samir Shah, Chairman, FFFAI The revolutionary tax structure would immensely impact the manufacturing and logistics industry, which have hitherto been facing serious issues owing to huge cost burden on them, primarily because of exorbitant transaction costs and multiple taxes. GST, which has already been implemented in many developed and developing countries, is expected to accelerate the speed of freight movement and growth of freight volume within, from and to the country supported by a robust warehousing system. The implementation of GST would be at appropriate time.
FFFAI, however, is urging the government and ‘GST Council’ (to be constituted soon to shape up the detailed structure of GST) that all freight forwarders/cargo agents should be exempted from the service tax (later GST) regime to make exports from India competitive. Unlike other countries, freight forwarders in India have to pay service tax, which they recover from their customers (exporters).
Border check-posts to be removed
Vijay Kumar, COO, Express Industry Council of India
We are hopeful that the government ensure that all the border check-posts between states would be removed. The international import and export shipments should be zero rated under GST regime. For International shipments to ensure seamless movements within the country it is vital that the customs clearance system (ICEGATE) is linked to GSTN.
Aviation Turbine Fuel is currently treated separately from other petroleum products for claiming mod vat credits and if ATF is not brought under the GST regime there would be substantial cost impact on ATF used in our member aircrafts due to cascading duties leading to price rise. In order to lower compliance cost, network industries like express industry, banks etc will only need to do single centralised registration under the GST regime as is the case with service tax registration presently.
Ajit Venkataraman, Managing Director, APM Terminals India
The new tax regime will usher an era of consolidation of logistics hubs leading to higher economies of scale. There promises to be a more practical approach to location and size of warehouses closer to manufacturing centers and consumer markets. Larger vehicles with less check points will reduce transit times, improve asset utilisation and make goods more affordable for the consumer.
Although the fine print is yet to be finalised, we are positive that the impact of GST will have a trickledown effect on the entire supply chain making it more streamlined. Implementation of GST has to go hand in hand with the relevant infrastructure setup, whether civil or IT and organisations need to streamline their processes to fit into the new tax framework. In order to assist industry players to develop and successfully implement revamped supply chains, the government needs to support development of essential infrastructure for hub and spoke models. This would help ease the concerns around unforeseen challenges GST may bring.
Arnaud Cauchy, Managing Director, GEFCO India
Tax terrorism will come to an end with the implementation of GST. The good thing is entry tax will be incorporated and we do not have to pay entry tax, this will reduce our waiting time at the border and increase our efficiency by reducing the delivery time. On commercial aspect, we will be able to provide with some innovative solution to our prime customers. Solutions like optimised transport plan with primary transportation from plant to regional hub, multi brand storage at regional distribution compound with multi services such as PDI and PPO and final secondary transportation to our dealers can be provided. For India, there is a need for a more mature mind set of the logistics industry in the supply chain market. Secondly, it definitely needs to accelerate the implementation of the GST bill which in turn will favour the global logistics development and prepare India to be the logistics hub of the world.
In terms of clarity on GST, firstly in transportation industry service tax is applicable. On a typical scenario, either consigns or consignee is liable to pay tax and in some cases transporter is liable to pay tax. We need to have clarity on the fact that with the implementation of the GST, who will be liable to pay tax either consignor or consignee or transporter, also whether there will be any abatement from the existing rate. Secondly, GST rate is also not finalised as of now and with the current discussion going on it seems that rate will likely be around 18 per cent. Thirdly, we need to ask ourselves what will be the impact of captive consumption of services for the companies which do in-house maintenance of vehicles.
Lower inventory and reduced documentation
Prakash Tulsiani, Executive Director & COO, Allcargo Logistics
This Bill is set to revolutionise logistics with unified and simplified structure versus multiple taxes at various levels. It will lower the inventories and working capital; reduce documentation, improve
Arnaud Cauchy Managing Director GEFCO India
Samir Shah Chairman FFFAI
Prakash Tulsiani Executive Director & Chief Operating Officer Allcargo Logistics
Ajit Venkataraman Managing Director APM Terminals India
Vijay Kumar COO Express Industry Council of India