Decod­ing GST for lo­gis­tics

Goods and Ser­vices Tax (GST), sched­uled to be im­ple­mented from July 1, is ex­pected to de­velop the lo­gis­tics sec­tor. In con­ver­sa­tion with CARGOTALK, in­dus­try vet­er­ans note that the tax regime can spruce up the in­dus­try.

Cargo Talk - - Front Page - KALPANA LOHUMI

The lo­gis­tics sec­tor, com­pris­ing of in­bound and out­bound seg­ments of manufacturing and sup­ply chain, is likely to get a much­needed boost, through the im­ple­men­ta­tion of GST. Since GST will re­place a bun­dle of in­di­rect taxes im­posed by the cen­tre and state; hence the regime is ex­pected to bring down the tax leak­age. This will au­to­mat­i­cally re­duce the freight cost.

The gov­ern­ment shall roll out GST on July 1, 2017. In an an­nounce­ment made by Arun Jaitely, Fi­nance Min­is­ter, Gov­ern­ment of In­dia, the gov­ern­ment has kept large num­ber of items un­der 18 per cent tax slab. Post GST im­ple­men­ta­tion, most FMCG com­pa­nies will be able to gen­er­ate sub­stan­tial sav­ings in lo­gis­tics and dis­tri­bu­tion costs as the need for mul­ti­ple sales de­pots will be elim­i­nated. Presently, FMCG com­pa­nies pay nearly 2425 per cent taxes in­clud­ing ex­cise duty, VAT and en­try tax. With a tax rate of 18 per cent un­der GST. There could be a sig­nif­i­cant re­duc­tion of six to seven per cent in taxes. The min­is­ter also men­tioned that road trans­port, air trans­port and rail trans­port will come un­der five per cent slab. As per the mar­ket ex­perts, GST will bring healthy growth prospects for the lo­gis­tics sec­tor. CARGOTALK takes a sneak-peek on the im­me­di­ate and long-term ef­fect of the tax, once it gets im­ple­mented.

Ge­munu Ro­drigo, CEO, Expo Freight, says, “GST will es­sen­tially elim­i­nate the ex­ist­ing in­ef­fi­cien­cies and fa­cil­i­tate struc­tural re-en­gi­neer­ing of the lo­gis­tics net­work. Ser­vice providers will be in­cen­tivised to lever­age hub-and-spoke sup­ply chain net­works by oper­at­ing large cen­tral ware­houses and re­model trans­porta­tion routes. This will en­able in­creased con­sol­i­da­tion in the in­dus­try with large play­ers oper­at­ing ef­fi­ciently. Phas­ing out the in­ter-state check posts will sig­nif­i­cantly re­duce trans­porta­tion costs and en­hance the ease of do­ing busi­ness.

In the opinion of Su­nil Kohli, Man­ag­ing Di­rec­tor, Ra­hat Cargo, “The im­ple­men­ta­tion of GST will yield sev­eral pro­duc­tive out­comes with fresh es­tab­lish­ment of ware­hous­ing hubs cou­pled with an en­hanced trans­porta­tions and lo­gis­tics ser­vices across the na­tion. Apart from ware­hous­ing fa­cil­i­ties, th­ese en­ti­ties in In­dia may now of­fer a va­ri­ety of value-added ser­vices such as pack­ag­ing, re­verse lo­gis­tics, bar cod­ing, etc. to pro­vide best ser­vices to the con­sumers.”

“The new tax­a­tion sys­tem will pos­i­tively af­fect the manufacturing chain, sup­ply chain, and re­tail chain. A strate­gi­cally placed ware­house not only im­proves

the con­sumer ser­vices but also fa­cil­i­tates proper sup­ply chain man­age­ment. It is ex­pected to do well in the GST regime,” he adds.

Strength­en­ing or­gan­ised sec­tor

San­jay P Rathi, Man­ag­ing Di­rec­tor, Sam­park In­dia, com­ments, “The tax will strengthen the com­pa­nies in or­gan­ised sec­tor as op­posed to the un­or­gan­ised sec­tor, since the cus­tomers will be al­lowed to off­set ser­vices tax un­der GST. In­dia’s lo­gis­tics sec­tor will be over­hauled with the im­ple­men­ta­tion of the GST and schemes such as Ded­i­cated Freight Cor­ri­dor (DFC) as well as lo­gis­tics hubs will be quan­tum leaps along with help­ing con­trol the in­fla­tion. The im­ple­men­ta­tion of GST will lead to lower tran­sit time and thereby gen­er­ate higher truck util­i­sa­tion,” in adding, “This will boost de­mand for high ton­nage trucks and lead to over­all re­duc­tion in trans­porta­tion costs. It will fa­cil­i­tate seam­less in­ter­state flow of goods, which is ex­pected to di­rectly ac­cel­er­ate de­mand for lo­gis­tics ser­vices.”

Kr­ish­naku­mar V, COO, Agility In­dia, notes, “Due to wide spec­trum of taxes for each of In­dia’s states and union ter­ri­to­ries, the freight that moves across the coun­try, is taxed mul­ti­ple times. With GST, com­pa­nies will now look to re­shape their dis­tri­bu­tion mod­els to the change in tax ge­og­ra­phy. The speed of move­ment of goods should im­prove, and we should ex­pect more in­no­va­tive busi­ness mod­els.”

Bhavik Chi­nai, Founder & CEO, Va­ma­ship, says, “Ef­fec­tive im­ple­men­ta­tion of GST would trans­form lo­gis­tics in­dus­try in In­dia. All cus­toms and SME busi­ness will have a new per­spec­tive for busi­ness af­ter GST. It will re­de­fine the way In­dian lo­gis­tics work and will flour­ish busi­ness of or­gan­ised play­ers of the sec­tor.”

An­shul Sing­hal, CEO, Em­bassy In­dus­trial Park, tells, “The GST regime prom­ises one coun­try; one tax. With GST, there will be pro­mo­tion of trade, im­prove­ment of in­vest­ment climate and an over­all rise in GDP. The first ben­e­fi­ciary will be the lo­gis­tics and trans­porta­tion sec­tors. It will un­shackle In­dia from its bu­reau­cratic web and im­prove the ease of do­ing busi­ness.”

“The sec­tor is largely frag­mented and com­prises of many un­or­gan­ised play­ers. Sev­eral play­ers in the un­or­gan­ised sec­tor avoid tax which gen­er­ates a cost gap be­tween them and the or­gan­ised play­ers. With GST com­ing into pic­ture, we ex­pect an over­all pos­i­tive im­pact, with a re­duc­tion in the cost com­pet­i­tive­ness as all the play­ers will be brought un­der a uni­form tax base, thereby im­prov­ing growth op­por­tu­ni­ties for the or­gan­ised play­ers,” notes Rathi.

“The whole process in­volved in mi­grat­ing from the cur­rent sta­tus quo to the post GST sce­nario man­dates a high level of trans­parency, dis­ci­pline to time­lines, stick­ing to com­pli­ances. This is no doubt good news for those who have al­ways towed the line and have in­vested in IT plat­forms that will fa­cil­i­tate trans­par­ent and real time trans­ac­tions. This will lead to some amount of con­sol­i­da­tion amongst ser­vice providers, while en­sur­ing that ser­vice users will now deal with in­creas­ingly im­proved and or­gan­ised ser­vice part­ners,” feels Vikram Man­sukhani, Head-3PLs, DIESL.

The rip­ple ef­fect

Es­ti­mat­ing that the full im­pact of GST will be vis­i­ble in the next 12-18 months, Kr­ish­naku­mar, says, “The im­me­di­ate ef­fect is to pro­vide all play­ers with a com­mon set of tax­a­tions where tak­ing in­put credit will be eas­ier and more trans­par­ent. So both man­u­fac­tur­ers and ser­vice providers will have bet­ter vis­i­bil­ity on ac­tual costs, and there­fore can be more com­pet­i­tive. In the medium term, clo­sure of bor­der check posts along with im­prov­ing in­fra­struc­ture will al­low for faster trans­porta­tion of goods across the coun­try, which will lead to op­ti­mi­sa­tion of dis­tri­bu­tion cen­ters, and lower the cost of in­ven­tory car­ried.”

Com­ment­ing on the same, Jaideep Raha, Man­ag­ing Di­rec­tor, Je­tex OceanAir, be­lieves, “Im­me­di­ate changes will be pri­mar­ily in the ac­count­ing soft­ware that could some­what be a prob­lem for us but in the long-run, this will sim­plify our billing process.”

Talk­ing about the ben­e­fits to lo­gis­tics firms from medium to long-term, Rathi, notes, “Q2 FY18 on­wards, the im­ple­men­ta­tion of GST is al­most cer­tain and sup­ply chains in the do­mes­tic mar­ket are ex­pected to un­dergo ma­jor over­haul­ing. As GST frame­work will be im­press­ing upon lo­gis­tics com­pa­nies to re­struc­ture their net­work, we ex­pect higher ef­fi­ciency to pre­vail de­spite of nec­es­sary mar­gin im­pact­ing com­pli­ance costs. Even though, there is avail­abil­ity of in­for­ma­tion on the new tax struc­ture, the real im­pact on lo­gis­tics re­mains un­clear. The evo­lu­tion of the sec­tor is a true barometer of the economy as the sub sec­tors, es­pe­cially ware­hous­ing and trans­porta­tion.”

“De­pend­ing upon the state of de­vel­op­ment, trans­porta­tion sec­tor ei­ther ex­pands or con­tracts (as a per cent of GDP) while ware­hous­ing re­mains al­most con­stant. While con­tri­bu­tion of over­all lo­gis­tics is just un­der three per cent of the US GDP, the sec­tor con­trib­utes near eight to nine per cent of In­dia. The un­der­stand­ing here is that a higher value to the over­all economy pushes down the cost of trans­porta­tion and stor­age over the years. This is ap­par­ent from the low in­fla­tion recorded in de­vel­oped economies while per­sis­tently high in EMs and poorer economies,” he adds.

Shar­ing his per­spec­tive, Man­sukhani says, “The im­me­di­ate changes would stay around a height­ened fo­cus on en­sur­ing that all ser­vice providers are GST com­pli­ant and that a timely ac­count­ing rec­on­cil­i­a­tion is pos­si­ble be­tween the user and the provider to en­sure that pos­si­ble in­puts cred­its are max­imised. This would present an op­por­tu­nity for some level of in­te­gra­tion be­tween the user and provider ERPs. In the longterm, quite clearly, there would be be­tween 25 to 30 per cent re­duc­tion in num­ber of ware­hous­ing lo­ca­tions and this de­ci­sion will be driven by the need for ‘Speed to Mar­ket’. Trans­porta­tion will re­quire in­creased fo­cus and in­vest­ment to en­sure the qual­ity of ve­hi­cles and drivers is sig­nif­i­cantly im­proved to en­sure faster tran­sit times while re­main­ing vis­i­ble in real time through the jour­ney.”

Jaideep Raha 0DQDJLQJ 'LUHFWRU -HWH[ 2FHDQ$LU As GST frame­work will be im­press­ing upon lo­gis­tics com­pa­nies to re­struc­ture their net­work, we ex­pect higher ef­fi­ciency Su­nil Kohli 0DQDJLQJ 'LUHFWRU 5DKDW &DUJR A strate­gi­cally placed ware­house not only im­proves the con­sumer ser­vices but also fa­cil­i­tates proper SCM Bhavik Chi­nai )RXQGHU &(2 9DPDVKLS All cus­toms and SME busi­ness will have a new per­spec­tive for busi­ness af­ter GST. It will re­de­fine the way In­dian lo­gis­tics work Vikram Man­sukhani +HDG 3/V ',(6/ GST sce­nario man­dates a high level of trans­parency, dis­ci­pline to time­lines, stick­ing to com­pli­ances

Sim­i­larly, Kohli feels, “The in­tro­duc­tion of GST might open new for­ays for the or­gan­ised sec­tor as well as help to align the un­or­gan­ised play­ers. The con­sol­i­da­tion of var­i­ous tax com­po­nents in­volved in the trans­porta­tion of goods and ser­vices will re­sult in in­creased ef­fi­ciency of busi­ness as a whole and will fa­cil­i­tate border­less move­ment of goods.”

Talk­ing about the im­me­di­ate ef­fect, Chi­nai high­lights, “En­tire un­or­gan­ised space will have the short-term neg­a­tive im­pact; such as in­ac­cu­rate fil­ing in terms of fi­nance will have an ad­verse ef­fect. But in the long-run, e-com­merce

in­dus­try will get an in­cred­i­ble boost. Tech­nol­ogy based start-ups will able to flour­ish their busi­ness be­cause of the way they have done their foun­da­tion.”

How­ever, as per Ro­drigo’s an­tic­i­pa­tion, the In­dian lo­gis­tics in­dus­try will be able to mi­grate to a more ef­fi­cient sup­ply chain model from the present model which is de­pen­dent on tax con­sid­er­a­tions vis-à-vis oper­a­tional con­sid­er­a­tions in the medium-to-long-term. “GST will be a key en­abler for busi­ness to re­vamp their sup­ply chain, in ac­cor­dance with var­i­ous busi­ness con­sid­er­a­tions and of­fer faster and bet­ter fa­cil­i­ties to clients,” he adds.

Are we pre­pared?

Talk­ing about the pre­pared­ness, Kr­ish­naku­mar in­forms, “Agility is pre­par­ing and we ex­pect to be ready with the nec­es­sary sys­tems, as well as the phys­i­cal in­fra­struc­ture to func­tion ef­fec­tively in the new regime. We are in­ter­act­ing with cus­tomers, ven­dors and em­ploy­ees and other stake­hold­ers about the changes in the tax struc­ture and what steps we are tak­ing to sup­port their busi­ness. More­over, there are mul­ti­ple stake­hold­ers in the in­dus­try and they are at var­i­ous stages of prepa­ra­tion.”

“It al­most seems like will there ever be a right time? The in­dus­try is some dis­tance away from be­ing ready, also fur­ther de­layed by some spe­cific queries on trans­porta­tion re­main am­bigu­ous with not much of a re­lief on tran­sit passes or way­bills to en­ter dif­fer­ent states. The GST im­ple­men­ta­tion in phase one would fo­cus more on ac­count­ing rec­on­cil­i­a­tions rather than lo­ca­tion de­ci­sion on the sup­ply chain net­work. Phase 2, which is pos­si­bly six to nine months, post GST im­ple­men­ta­tion will fo­cus on re­design­ing an op­ti­mum net­work. By this time, some new trans­porta­tion routes which are to­day only con­cep­tual in na­ture may well be­come re­al­ity,” opines Man­sukhani.

Ex­press­ing op­ti­mism, Sing­hal says, “It is more than ready. In­dia has a ma­ture busi­ness en­vi­ron­ment now. The In­dian play­ers have al­ready started host­ing GST sem­i­nars, train­ing and started think­ing about how to make the tran­si­tion as smooth as pos­si­ble.”

“With new for­ays for the or­gan­ised sec­tor as well as help to align the un­or­gan­ised play­ers, this is ex­pected to in­crease the over­all vol­ume of the busi­ness as de­lays through mul­ti­ple check posts and en­try points will be re­duced. We are GST-ready, whether it is with re­spect to the is­sue of in­voice or re­ceipt of pay­ment, we will com­ply as re­quired,” shares Rathi.

Raha says, “Cer­tainly it will make our tax cal­cu­la­tion much eas­ier. It will elim­i­nate the present days’ con­fu­sion be­tween the for­warder and the cus­tomer since we dif­fer on the levy­ing of tax on cer­tain ser­vices and charges that are billed as there is not much of clar­ity at present.”

On the other side, Chi­nai be­lieves, “We need more time; the mass num­ber of play­ers are un­or­gan­ised. Few days or weeks would be good enough but Septem­ber will be a bug jump.”

Nur­tur­ing lo­gis­tics

The tax is be­ing rolled out next month, but, there are few fac­tors that needs to be man­aged. Ro­drigo says, “Sim­plic­ity in its im­ple­men­ta­tion and lower tax for the in­dus­try would be help­ful.” From the ser­vice provider’s per­spec­tive, Kr­ish­naku­mar shares, “LSPs need to be pre­pared on the sys­tems front, to be able to com­plete their com­mer­cial trans­ac­tions in a com­pli­ant man­ner in the new GST en­vi­ron­ment. The other im­por­tant fac­tor will be the abil­ity to make changes in in­fra­struc­ture such as dis­tri­bu­tion cen­tres as per chang­ing cus­tomer re­quire­ments in the medium term. It is also im­por­tant to com­plete ba­sic re­quire­ments like GST reg­is­tra­tions, etc which are all part of the prepa­ra­tion for the change.”

Man­sukhani notes, “Cre­ation of high qual­ity lo­gis­tics parks, which have some sub­sidy for oper­at­ing within that area, driver train­ing and al­le­vi­a­tion pro­grammes, recog­nis­ing lo­gis­tics as an in­dus­try are some of the high-level ac­tions that should ide­ally pro­ceed im­ple­men­ta­tion of the regime.”

Kohli enu­mer­ated fol­low­ing points that needs con­cern while im­ple­ment­ing the tax:

To ren­der op­ti­mal in­cen­tives to the lo­gis­tics sec­tor in In­dia, a lower GST rates for cap­i­tal equip­ment and in­put ser­vices for set­ting up ware­houses and other in­fra­struc­ture should be provided.

Check posts and Air­way Bills should be elim­i­nated un­der the GST regime.

For ser­vices ren­dered to the e-com­merce in­dus­try, the ven­dor or the mar­ket place should not be li­able to GST.

In­ter­na­tional freight should be zero rated.

An­cil­lary ser­vices for ex­port should be zero rated. Avi­a­tion tur­bine fuel (ATF) is ex­cluded from the purview of GST for at least two years af­ter the im­ple­men­ta­tion of GST.

The first ben­e­fi­ciary will be the lo­gis­tics sec­tor. It will un­shackle In­dia from its bu­reau­cratic web and im­prove the ease of do­ing busi­ness

With GST, the speed of move­ment of goods should im­prove, and we ex­pect more in­no­va­tive busi­ness mod­els

The im­ple­men­ta­tion of GST will lead to lower tran­sit time and thereby gen­er­ate higher truck util­i­sa­tion

Phas­ing out the in­ter-state check posts will sig­nif­i­cantly re­duce costs and en­hance the ease of do­ing busi­ness

In ad­di­tion, Rathi lists, “Cur­rent ex­emp­tions ex­tended to FTWZ should be ex­tended un­der the GST regime and sup­plies to FTWZ should be zero rated.”

Ac­cord­ing to Raha, phase wise im­ple­men­ta­tion and to have a re­ver­sal Dry Run of the GST is im­por­tant for first three months along­side the present-day tax­a­tion sys­tem.

Chi­nai stressed on sim­pli­fied and prac­ti­cal e-Air­way Bill. “This can rev­o­lu­tionise the truck­ing in­dus­try. And, not to for­get ser­vice tax regime nedds to get more clar­ity,” he opines.

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