financial services · GST

How GST Affects my Logistics Business?

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 CGSTact and easing norms. These include:
  1. Delayed infrastructure projects.
  2. 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.
  3. Lack of adequately skilled human resources in the Logistics sector.
  4. Other bottlenecks in connecting ports and stations to remote domestic markets.
  5. 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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