GST and its impact on Logistics
The logistics industry in India was estimated to be worth USD 130 billion and has been growing at a steady rate. While the logistics sector could be among the primary bottlenecks in driving economic growth, it will also act as a catalyst to realizing India’s manufacturing and eCommerce dream for the coming decade.
Logistics companies in India have evolved over the years from being mere first-party logistics providers (1PL) to second-party logistics providers (2PL) to integrated fourth-party logistics providers (4PL) by providing a complete package of logistics services, including transportation, warehousing, pool distribution, management consulting, logistics optimization, last mile delivery etc and complementing them with advanced supply chain facilities. Alongside, the government has made considerable inroads into ensuring a favorable business climate. In one such initiative, the government has proposed to implement the Goods and Services Tax (GST), which promises to integrate India’s multi-layered indirect tax system into a single unified one, unshackling India from its bureaucratic web and improving the ease of doing business. “The changes in the proposed indirect tax system could reduce transportation cycle times, enhance supply chain decisions, lead to consolidation of warehouses, etc. which could help the logistics industry reach its potential in terms of matching high quality service levels and growth”.
In this article, we look at the various aspects of the logistics companies that may be affected by GST and how industry dynamics are likely to change once GST is implemented.
Improvement in Transit Times
Logistics companies typically use road transit, as it is the most common and cheapest mode, and does not affect the service levels. Having a unified market under the new GST regime would assist the smooth flow of goods within the country. Although border checkpoints may not be done away with immediately, reduced compliance scrutiny at these checkpoints will reduce transport hassles. This change will enable logistics companies to deliver goods more efficiently and optimize delivery times as compared to the present. The reduction in delivery time would also lead to a reduction in distribution costs by 10-15%, thereby lowering the final price of the goods.
Focus on Technology
In today’s fast-paced world, information technology has to keep abreast of new developments and change according to the changing needs. GST will entail a new set of compliance requirements for which companies will have to adopt new ERP accounting systems and inventory management systems to remain compliant during all stages. On the other hand, the industry will then be able to avail tax credits for all its purchases of goods and capital goods alike, be they delivery vans or packing machinery. Also, tax credits on services will continue to be available under the GST regime.
“With GSTs imminent implementation, the logistics industry should start exploring different supply chain models with their clients and at the same time develop a completely synchronized ERP accounting system to support inventory supply management as required under the GST regime”.
Nevertheless, GST is still the change the logistics industry is eagerly awaiting.