The logistic industry is a major support to the Indian economy contributing 4.7% to the GDP. The value of this industry is $130 billion and sadly one of the most unorganized sectors in the country. It comprises commercialized movement of goods from one state to another or within one state to fulfill the needs of the people. Every nooks and corner of India depend on this industry for all needs right from basic food supply to big manufacturing machinery. This article will discuss how GST is changing this big unorganized sector in India.
The Indian Logistic Industry before GST
It is important to give a glimpse about the pre-GST logistic scenario in India to understand the post-GST framework. The logistic industry comprises inbound, outbound manufacturing segments and the supply chain in India. The various segments of this industry are value added logistic, freight forwarding, warehousing, transportation which is further divided into rail, road, air and water. For various serious issues, the logistic cost in India was higher than many countries. One of these issues was complex tax structure; there were five taxes, namely Excise Duty, Service Tax, Sales Tax/VAT/CST, Customs Duty and Entry Tax/Entertainment Tax. Moreover, any freight that moved in 29 Indian states was taxed multiple times as per various geographical locations.
Similarly, dishonest practices like bribery and corruptions made the industry handicapped in terms of long delivery time, fulfilling vested interest of various self-created groups and regional strikes due to social or political insurgencies.
The Indian Logistic Industry after GST
GST is going to create a bigger impact on the logistic industry of India in the following fields:
Burden of interstate tax
Earlier, the pre GST complex tax structure was a big burden for the transporters as they were asked to pay indirect taxes at different rates in all the 29 states of India. Apart from this, 2% corporate tax was levied in any inter-state good transfer. But GST has brought a unified tax structure across all the states irrespective of any geographical differences. Thus, comparatively, the previous tax burden has decreased to a large extent.
Moving towards an organized sector
GST is inspiring the large market players to emerge and control the complete supply chain. This new tax structure is discouraging the small and medium market players but at the same time transforming the logistic sector to an organized structure.
A faster logistic time
Due to the complicated indirect tax structure, the trucks were delayed in reaching their destinations on time before GST’s implementation. But the uniform tax structure of GST has decreased the transportation time. The burden of border check posts is no more a headache for the transporters. This is increasing the operational efficiency of the industry along with fast deliveries and low logistic cost. The World Bank stated that India can save upto 30-40% logistic cost by eliminating the tolls and check posts.
The warehousing pattern will change
A centralized warehousing and an integrated tax system is making the messy supply chain simpler than before. The warehouse optimization system is minimizing the inventory as well as logistic cost. It is expected to minimize this logistic cost by 1.5-2.00%.
The GST tax rate is for air freight (export), warehousing and e-commerce are 18% whereas the pre-GST indirect slab was 15%. 5% GST slab is decided for road transportation and ocean freight services. The government has introduced an e-way bill for smooth truck movement and this bill will be implemented from October 2017. The business players are changing their supply chain strategies in compliance with GST. For an unorganized sector like logistic, lots of handholding are required to understand the gap between the compliance need and operations. A least minimum six month is an ideal time for the industry to move on to a completely new tax structure like GST.