Ef­fect of GST on the lo­gis­tics sec­tor

GST is a wel­come move for the lo­gis­tics sec­tor.

Commercial Vehicle - - WHAT'S INSIDE - Story by: Prof. G Raghu­ram

GST is a wel­come move for the lo­gis­tics sec­tor

Goods and Ser­vices Tax (GST) would have come into play by the time this mag­a­zine hits the stands. For the lo­gis­tics sec­tor, it is a wel­come move. Re­plac­ing taxes levied by the cen­tral and state gov­ern­ments, GST will im­pact the lo­gis­tics sec­tor on at least two counts. First, with the cen­tral sales tax regime giv­ing way to GST, in­ter-state bar­ri­ers for do­mes­tic trade will go away. This will re­duce the tran­sit time. Ware­house lo­ca­tions for var­i­ous prin­ci­pals could be ra­tio­nalised such that they can con­sider sec­ondary dis­tri­bu­tion from larger and fewer ware­houses into ter­ri­tory gov­erned by lo­gis­ti­cal con­sid­er­a­tions rather than ad­min­is­tra­tive con­sid­er­a­tions like state bound­aries. Sec­ond, with uni­form tax­a­tion for a prod­uct across the coun­try, sourc­ing dis­tor­tion and sales in ‘tax haven’ states at the cost of lo­gis­ti­cal op­ti­mi­sa­tion will re­duce. The ef­fec­tive­ness of both will de­pend on the ro­bust­ness and pop­u­la­tion of the IT-based GST Net­work (GSTN), which would al­low for on­line rec­on­cil­i­a­tions.

In-line with the fed­eral struc­ture of In­dia, GST will have

two com­po­nents – Cen­tral GST (CGST) and State GST (SGST). Both, the Cen­tre and States will si­mul­ta­ne­ously levy GST across the value chain. Levied on the sup­ply of goods and ser­vices, Cen­tral GST would be levied and col­lected by the Cen­tre. The States, at the other end, would levy and col­lect the State Goods and Ser­vices Tax (SGST) on all trans­ac­tions within a State. In the case of in­ter-State trans­ac­tions, the Cen­tre would levy and col­lect the In­te­grated Goods and Ser­vices Tax (IGST) on all in­terS­tate sup­plies of goods and ser­vices un­der Ar­ti­cle 269A (1) of the Con­sti­tu­tion. The IGST would be roughly equal to CGST plus SGST. For the trans­port sec­tor, GST, at one level, would ra­tio­nalise trans­port flows. GST would re­duce travel times from the ori­gin to des­ti­na­tion. There is a pos­si­bil­ity of a modal shift from road to rail, with the pos­si­ble im­pe­tus to the growth of lo­gis­tics parks as ag­gre­ga­tion and dis-ag­gre­ga­tion cen­tres.

The trans­porta­tion sec­tor will at­tract five per cent GST with spec­i­fied in­put cred­its. I am hop­ing that more branded play will come into this sec­tor. This will call for larger truck­ing com­pa­nies, with a larger share of owned trucks. The need for lo­calised small sin­gle truck en­ti­ties will re­duce. In gen­eral, the in­flu­ence of GST

on truck­ing would be on the pos­i­tive side. Long-haul truck op­er­a­tors will gain more. The dif­fer­ence in GST rates ver­sus the cur­rent tax rates for spe­cial cargo will af­fect spe­cial cargo truck op­er­a­tors. It is also likely that buy­ers will avoid deal­ing with non-reg­is­tered sup­pli­ers due to higher bur­den of com­pli­ance. A short term phe­nom­e­non it will be. In the long term, com­pli­ance will have to be achieved. There will thus be more play­ers in the or­gan­ised sec­tor. The pres­sure on in­come of a truck op­er­a­tor is al­ready there. I hope that tax­a­tion on fuel would come down, es­pe­cially if tax col­lec­tions due to GST, and due to an in­creas­ing net of ser­vice tax, go up. Any at­tempt by states, which would re­sult in dif­fer­en­tial tax­a­tion across states, would de­feat the pur­pose of GST. It will cre­ate dis­tor­tions in sourc­ing of crit­i­cal in­puts.

Since more than one tax is merg­ing into GST, there is no need for for­mal­i­ties (pa­per­work) to get more com­plex, and for the over­all tax­a­tion process to turn more chal­leng­ing. Pa­per­work will, in fact, re­duce. State bor­der checks should dis­ap­pear even­tu­ally. They make take a while to dis­ap­pear, even af­ter the in­tro­duc­tion of GST, since states would fol­low a wait and watch pol­icy. More im­por­tantly, the in­tro­duc­tion and ro­bust func­tion­ing of the GSTN would in­flu­ence this. It is not clear if busi­nesses would shut down as a con­se­quence of GST, ex­cept for small ware­house ser­vice providers and tax in­ter­me­di­aries. The im­pact on tax col­lec­tion is un­likely. The in­put tax credit along with GSTN can be a po­tent force in in­creas­ing tax col­lec­tion across a wider net of play­ers. Most of the play­ers who would come into the net would be small play­ers. It would thus im­pact dis­trib­u­tors and dealer net­works as well as small ven­dors. About in­put tax credit, and its ways of work­ing, the over­heads of small play­ers would in­crease since the big­ger play­ers in the sup­ply chain would want them to be a part of GSTN.

The hub and spoke model will be­come sharp. Hubs will be de­ter­mined more on lo­gis­ti­cal con­sid­er­a­tion than state bound­aries. CV sec­tor de­mand could re­duce marginally, due to flow op­ti­mi­sa­tion and a pos­si­ble shift to­wards rail trans­porta­tion be­tween ma­jor hubs. How­ever, eco­nomic growth due to bet­ter tax col­lec­tion will re­sult. This would lead to an in­crease in over­all con­sumer de­mand, the re­sult of which will be greater trans­porta­tion de­mand. On the other hand, more in­vest­ments in in­fra­struc­ture would lead to higher ve­hi­cle util­i­sa­tion, and re­duce the de­mand in this sec­tor. GST will in­flu­ence lo­cal man­u­fac­ture. Man­u­fac­tur­ers in states hav­ing lower tax­a­tion will find it a bane, while those in states where tax­a­tion is high will find it a boon. While CV sales can hap­pen di­rectly than through tax havens, com­po­nent man­u­fac­tur­ers will in­creas­ingly move into the or­gan­ised sec­tor. If the tax­a­tion of CVs and tyres at 28 per cent, and of trac­tors at 18 per cent may be sur­pris­ing, it would be worth ac­knowl­edg­ing that CVs and trac­tors ad­dress dif­fer­ent seg­ments. If it looks like a dis­par­ity, I don’t think it will mat­ter. While GST will have an im­pact on the CV in­dus­try, it will not ex­actly over­haul it. -------------------------------------Prof. G Raghu­ram is the Direc­tor of In­dian In­sti­tute of Man­age­ment, Ban­ga­lore.

⇩ xxx The in­flu­ence of GST on truck­ing would be on the pos­i­tive side.

⇧ GST rates ver­sus cur­rent tax rates for spe­cial cargo will af­fect spe­cial cargo truck op­er­a­tors.

ØThere will be growth im­pe­tus on lo­gis­tics parks as ag­gre­ga­tion and dis-ag­gre­ga­tion cen­tres.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.