The
Indian Logistics sector obtained a vastly improved rank of 35 among
160 countries in the World Bank sponsored Logistics Performance Index
last year and could potentially be a huge contributor to the new GST
tax regime. According to an IMAP estimate, India’s logistics
market is valued at USD 260 billion and has consistently seen double
digit growth rate for a number of years.
Logistics
is integral to the smooth flow of goods in an economy. It covers the
entire gamut of activity involved in the transfer of goods from the
manufacturer to the consumer such as shipping, road, rail and air
transport, port services, warehousing and other value additions. The
fortunes of this sector directly affect international and intra
national trade and are an excellent indicator of economic strength.
How
GST impacts Logistics services
The
Central Goods and
Services Tax Act, 2017
provides for the “levy and collection of tax on intra-state supply
of goods or services or both by the Central Government”. GST is an
indirect tax, which means that the onus of paying this tax rests on
the purchaser. It is levied at every stage of value addition to the
good or service. It is also a destination based tax. This means that
the tax is collected in the State where the transaction actually
takes place. The Central GST provides for a flat tax rate throughout
the country, thereby eliminating multiple incidences of taxation
which has long been the bane of trade with the hinterlands. Also, the
GST act provides for a system of Input
Tax Credit, by which, a wholesaler, for example, can claim relief
for tax already paid as part of his cost at the previous link. This
significantly mitigates the cascading of taxation by reducing the
cost added to a product at each stage of value addition. The older
system employed State levied Value added taxes apart from the Central
excise tax, collected by each State, thereby, increasing the final
cost to the end consumer.
The
logistics sector, being located at the middle of the supply chain, is
easily the biggest beneficiary of the new GST regime. By reducing the
number of points of taxation and hence obstacles to free intra-State
trade, the long awaited GST
system hopes to address the needs of businesses attempting to
cash in on demand from the rising middle classes and aspirational
societies in the smaller towns and metropolises.
Logistics
Industry Pre and Post GST
In
the first half of this decade, massive growth in trade volumes along
with increased regulation prompted the emergence of specialized
containerization services. 3PL services as well as value added
services such as in plant management and reverse logistics appeared
for the first time. This period witnessed greater amalgamation of the
supply chain with logistics enterprises to meet the needs of the end
consumer.
The
logistics sector is trending toward greater digitization and
automation of their services in their quest to reduce the number of
intermediaries they are forced to rely upon. Entirely integrated
logistics services, such as those offered by 3PL and 4PL players will
be a likely outcome as firms try to rationalize costs through
economies of scale on the back of relaxed regulation.
Continuing
challenges in the growth of the Logistics Sector
Research
house, KPMG, outlines some prominent challenges that the industry
will face despite the enactment of the CGST act and easing
norms. These include:
- Delayed infrastructure projects.
- A possibly overcharged rate of 18% on most goods and services with no incentive to use cheaper modes of transport such as railways and domestic waterways.
- Lack of adequately skilled human resources in the Logistics sector.
- Other bottlenecks in connecting ports and stations to remote domestic markets.
- Payment infrastructure continues to be below par.
Tax
authorities have also promised to go slow for the next 6 months as
traders adapt. Tech enabler and online
income tax return solutions provider, All India ITR’s Vikas
Dahiya, says that the full impact of the GST has yet to be seen but
that it certainly goes a long way towards bringing much needed
uniformity and simplicity in tax
return filing and
compliance in the country.
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