GST set to transform logistics industry

To remove distortions from differential taxes, duty structures

GST set to transform logistics industry

The country’s greatest tax reform GST is transforming the logistics industry in a country where moving stuff around is notoriously difficult to do, executives say.

The advent of organised retail and ecommerce began modernising warehouses in India a decade ago, but most firms still rely on musty, dilapidated “godowns”, as storehouses are known colloquially.

The unified tax system is expected to bring change on a far grander scale, removing distortions created by differential taxes and duty structures imposed across the country.

“When we moved from one state to the other, it felt like moving from one country to another,” said Ramesh Agarwal, chairman of New Delhi-based Agarwal Packers and Movers. But GST will change all that, with the biggest tax reform seen since India won independence from British colonial rule.

Companies that have previously based storage models on tax efficiency can move to the much more cost efficient, demand-based hub-and-spoke model used globally.

Anticipating the change, Agarwal’s firm, for example, has carved India into five regions and is setting up one massive warehouse in each.

“There’s no tax arbitrage to be gained. So decisions on manufacturing, warehousing and selling will be purely driven by the real costs of manufacturing and going to market, that is the single biggest advantage of GST,” said R Subramanian, Managing Director at DHL Express in Mumbai.

Subramanian still anticipates bureaucratic headaches, notably from GST’s e-way bill system, requiring vehicle details from pickup to delivery, which he reckons would generate 90 million entries daily for the express delivery sector alone.

But, the reform, along with the gradual shift in the country’s service dominated economy toward more manufacturing, has paved the way for ultra-modern storage sites with automated conveyers, RFID-enabled tracking and IT-enabled warehousing management systems. The potential growth, and investment needed for modernisation has spurred a slew of deals between Indian firms and global private equity players.  “GST is not only a tax reform, it is also a business reform as a whole, and a lot of businesses are now restructuring their supply chains,” said Rohit Jain, a partner with Economic Laws Practice in Mumbai.

FOR TRADE & INDUSTRY

India to become one market, traders from any part of the country to be allowed to conduct business activities all over the country
Currently, traders subject to nearly 17 Central & state tax laws
Traders to be eligible for Input Tax Credit not only for the Goods but even for Services as well.
Input Tax Credit not only from home state but also from other states
No statutory forms either for local or inter-state sales
Landing cost/manufacturing cost of products likely to be cheaper

FOR CONSUMERS

Most indirect taxes to be subsumed under GST
No overlap of taxes, overall tax incidence likely to go down, lead to lowering of the prices
GST to check leakages,increase transparency and make supply chain efficient
If revenues from GST increases then over a period of time Income Tax rates will go down
Lower prices to lead to increase in demand
Lower prices to lead to increase in production, increase in employment
Consumer will know the actual total incidence of the taxes paid by him
GST to help rescheduling the family Budget

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