The transportation and logistics sector is likely to experience far reaching consequences as a result of the GST reform in India. It is likely to open up an entire gamut of opportunities to rationalize and reengineer transportation and logistics networks in India. The GST bill is going to give impetus to the development of logistics infrastructure.
As per the last figures in 2013, the logistics industry in the country is estimated to be worth US$130 billion and is on the growth trajectory. Over a period of time the logistic companies have evolved and are providing a complete package of transportation, warehousing, pool distribution and logistics optimization etc. However, the inefficient tax system with the complications of the interstate tax regime has resulted in inefficient and long supply chains with warehouses in every state. GST is likely to result in the overhauling and compression of the entire logistics set up.
Under the GST amendment, tax will be levied on stock transfers and full credit will be available on interstate transactions. Thus the warehousing locations will no longer be dependent on the tax considerations and will be decided on the company strategy and logistic requirements. The preferred location for the warehouses would be in close proximity to the manufacturing location or consumption markets. This will lead to shutting down of midway warehouses and new ones with larger sizes will come up in the preferred locations.
Currently abatements are available to transport service providers under the service tax laws. However, this is likely to be discontinued under GST.
The exclusion of petroleum products from the GST net will have severe implications as the motor spirits constitute more than 50% chunk of the business.
The GST will be applicable on the transportation charges in full for the delivery of the goods. The exclusion of petroleum products will break the tax credit chain resulting in additional costs.
Currently 60% of the logistics time is spent for tax compliance on the interstate check points for scrutiny of records and tracking of the interstate sales tax. With the advent of the GST a mechanism for centralized registrations and compliances would be required. Not only it will help the service providers to claim and utilize credits but also will track the tax compliance. In the absence of this centralized service the border checks will continue and we will fail to gain the anticipated reduction in logistic time.
The GST implementation will lead to the emergence of organized service providers since taxes will not be added costs for business. In the current scenario the logistics sector is a highly fragmented industry with a very few large organized players. The unorganized sector would have to shape up and join hands with the organized players for setting up economies of scale. This will augur well for both the players.
The clarity is still to emerge on the GS Tax for the logistic services to and fro from the special economic zones of India which are currently not under any state jurisdiction. There is also a need for appropriate rules for tax credits/refunds for the logistics in case of export of goods which will qualify under zero tax.