GST impact on the Logistics Industry in India
We all know about how the logistics industry which is core for making sure the goods reach the consumer point at the earliest and in the cheapest manner, grapples with the current Tax systems and State laws.
The challenges as known to all are more to do with trade regulations, trained manpower, infrastructure issues, poor IT backup and overall old warehousing and storage systems.
- The current tax system is on the base inventory and distribution models which is based on the Central sales Tax and the State value added tax rates. When logistically you are crossing various states , multiple taxes are levied resulting in the logistics and operational costs going up.
- This model results in long delays at the state checkpoints because of material scrutiny which forms a part of state level compliance trucks in turn resulting in trucks standing in the queue for many hours. 60–70% of the movement of freight in India is by road, hence the transits gets effected resulting in poor efficiency.
So, by the above two major challenges the industry faces is,
- Costs go up and Transit time increases .
- The other effects are obviously loss of sales, stock pileups, inventory cost going up and high logistics costs.
GST will help in providing a solution to the above.
With the introduction of GST, the indirect tax first will become uniform (18%) which will replace the multiple tax structure and there will be single tax like direct tax( for eg: Income tax) . This will help in development on new infrastructure, which will help us do away with state warehouses, c&f etc , if required. Companies will have to rework on the current models of distribution and transportation as a single warehouse may be enough instead of many. Many co’s have their plans ready .They would have the mother warehouse near the manufacturing units or the gateways or one single location for the company and do away with multiple warehousing strategy. This will help them to optimise costs, manpower, stock planning , better asset optimization and improved efficiency. This will also east out the biggest hurdle of multiple paperwork requirements of statuory bodies which used to be different for each states and help co’s to reduce manpower, improve efficiency from production to shipping , better compliance to JIT models etc
Logistics industry in India has been growing and there has been a steep growth in logistics since 2010. After the b2c market gained momentum we have multiple logistics supplier models of 1Pl,2Pl,3Pl,4 Pl, Own logistics setups. This types of models work on providing complete solutions of Logistics and offering great services with advanced supply chain facilities. Once GST in implemented we will see a shift of pattern of supply chain assignments, supplier channels, changed routings ,networks etc of the logistics providers. With the roll out of GST, the taxable event will now be either at the manufacturer, sales of goods or provision of service. The transport industry which enjoys exemptions under the GTA(Goods Transport Agencies) may not be there now.
On the other front, the logistics industry would need to redefine the opportunity. Accordingly change plans for better opportunity and smooth functioning. Offer better transits and less objections for movements of goods in the country irrespective of the mode of shipping. Its estimated that the delivery timings would be better by 15–20% and costs would reduce by more than 1 to 2% plus depending on co/industry etc. Advanced technology will become imperative now for all and sundry as the new compliance systems will need to be adhered to by the logistics companies as well as suppliers. Suppliers will need to have better ERP systems to work on the new tax structure and update records, reports etc. This will overall help the entire industry to come out form the age old practices of distribution leading to inefficiencies, duplicity and redundant processes in the process of warehousing, stocking, supply of goods and services.
GST currently seems to be a painful exercise for the eCommerce industry as they were still working on paperwork and other requirements of the current tax system, the future brings more complex compliance system resulting in more and more work for eCommerce co’s to handle their market place model and ensure their suppliers who are small merchants donot go away from doing business with them due to a sudden cost increase in their business by selling online. May be the Govt. needs to redefine some favourable parameters for this $25billion industry poised to grow at a CAGR of 55–60% year over year for the next couple of years.
So, GST will help industry as a respite and is a hope for better logistics resulting in a great future on logistics. Economy growth be an after effect of this and Consumer will get benefited once all stabilizes effectively. Going forward once petroleum is also under the GST gambit in future , it will be a big booster for the logistics industry. We can look for an accelerated growth with lots of scope for continous improvements in supply chain in the years to come for a better logistics scenario in India