Implementation will decide effectiveness
GST is expected to impact a wide range of industries of which logistics and transport will be the most affected sectors. Piyush Kumar Singh, CEO, Indus B2B Solutions, shares his vision on how GST Bill will impact the logistics industry.
Parliament has passed the GST Bill. Industry experts are of the view that the new law would help in the overall growth of the economy and softening of prices. According to some estimates, the new tax law could result in a 2 per cent growth in GDP. India has already been hailed as a ‘bright spot in world economy’ with 7.9 per cent GDP growth, piping China. Adding the GST increase to the kitty will get the GDP figures soaring.
The logistics and transportation industry is worth more than $130 billion. It is an important cog in the entire infrastructure superstructure. For India’s economy to gallop, a leaner and more efficient logistics industry would be paramount and the 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 finds itself caught in the complex of compliance and regulation. With a single 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 per cent, it would add 8 per cent additional trucks on the highway.
However, the moot question remains, is your business software ready for GST? Currently, the industry is largely unorganised and scattered because of the tax structures at the state level. The present inter-state system of transport taxation has compelled organisations to put up warehouses in every state, thus making the supply chain longer than it needs to and therefore to a large extent inefficient. Given the complex structure, the transport industry ends up spending almost 50-60 per cent 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 several forms for recording the movement of goods in and out of their jurisdiction. Present processes also necessitate the transporter to carry the hard copies of the invoice and forms along with them. The new law will replace various taxes that the Centre and State governments charge separately. This would translate into increased uptime for trucks, reduced idle hours, quicker turnaround time and more optimised warehousing structure.
Key hubs would emerge with single GST across the country. Consequently, manufacturers can have a hub rather than a separate warehouse for each state
According to a report by the Ministry of Road Transport and Highways, a truck typically spends nearly 16 per cent 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 checkposts on state borders. There would also be simplification of the documentation process that is needed for transporting goods across India. These are significant objectives given the high average waiting time along with the stoppages for trucks transporting goods. Under the existing regime, big corporates ‘stock transfer’ goods to other states as they have the logistics and infrastructure, thus escape paying tax on interstate movement. But, owing to lack of infrastructure, SMEs and start-ups 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 start-ups at par with big corporates by taxing stock transfers as well. GST for start-ups and SMEs: boon or bane?
Today, logistics includes transportation and warehousing, along with distribution and optimisation. The GST tax will be operational on transportation and full credit will be provided on interstate transactions. This is expected to lead to concentrated mega logistic chains that are optimal and efficient. This will eventually lead to centralisation which will make the process of claiming and utilising credits easier. In addition, tax compliance issues will get resolved. Moreover, under the GST regime, regional warehouse hubs will emerge.
Unlike the existing tax regime, a manufacturer would not need a warehouse in each state, leading to centralisation of resources. Key hubs would emerge because of a single GST across the country. Consequently, manufacturers can have a hub, for example, in Delhi which can serve the entire north region, rather than having a separate warehouse for each state. Therefore, the whole logistics chain becomes more focused, leaner, concentrated and smarter. The GST could lead to major consolidation in this segment.
If the waiting time of trucks is reduced by 50 per cent, it would add eight per cent additional trucks on the highway