Here's how GST is going to be ‘legendary’ for logistic industry in India
May 26, 2017, 14:36 IST
Logistics is one tricky sector that is surely going to benefit once the Good and Service Tax (GST) gets rolled out from July 1. However the results won’t be too quick. Right now, Blue Dart Express, Gateway Distriparks and Allcargo Logistics are running negative return in the market. At such a juncture, logistic industry is waiting for July just like the farmers of Maharashtra awaiting the rain.
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The current system of indirect taxation in India is very complex and logistics faces it the most. Each of the 29 states levies different magnitude of taxes when goods are moved across their borders. Both central and state taxes sums up to around 25-27% on goods. Pratish Sanghvi, Co-Founder of Grab a Grub Services Pvt. Ltd said that once GST implementation gets in place, existing taxation structure will dissolve and a new unified structure for all states will come into force. Hence, the effective rate is expected to come down to around 19-21%. This reduction of 6% in taxes will count a lot for the final burden bearing consumers. Grab is India’s first and leading last mile delivery service for businesses and merchants to bridge the gap between them and consumers. GST will lead to a total reduction of 20% in other logistics cost like warehousing, freight forwarding etc.
However Sanghvi cautions the major challenge before the government is to arrive at a revenue neutral rate to ascertain no adverse effects on the revenues of central and state governments after the implementation of GST. Furthermore, the government has to protect the interests of all the stakeholders including the ultimate consumers.
Structural re-engineering of the logistics network
GST will remove process bottlenecks. A recent study revealed that out of the total transit time taken by a truck, it remains idle for 40% of the time due to border checks for octroi and other entry barriers. After removal of this hurdle, quicker movement of goods and increased number of deliveries will ensure operational efficiencies. Also, an estimated cost of 25% can be saved, which is incurred due to stoppages and idleness.
“Currently to avoid interstate taxes, businesses build warehouses near their manufacturing facilities, ignoring the geographical disadvantages. After GST implementation, businesses will warehouse their goods at most suitable locations without the fear of multiple taxes,” said Sanghvi.
Government has also allowed 100% FDI in warehousing. It will be much easier for foreign players to comply with the single point GST norms than with the previous ones.
Trucking business: the major blind spot
“Trucking business was always unorganized and fragmented, and it hasn’t changed much in recent time. Local businesses are largely dependent on the nearby transporters which usually rip off the users despite poor quality and inefficiencies,” Singhvi informed.
There are many startups such as Rivigo and Blackbuck that are eyeing a complete revolution of the industry. A cost effective mix of higher efficiencies and lower transit time is the product they are going with into the market.
India vis-à-vis global benchmarks after the implementation of GST
GST has received critical acclaim globally. There are more than 160 countries around the world that have already implemented GST. After a delayed roll out, drastic changes will take place in India’s economic future. Globally, the average rate of GST ranges between 15-20%. We are yet to decide a revenue neutral rate, but the vibes are positive for logistics industry.
In India, the operational inefficiency exists in the core and costs are on a higher side than other countries. This bullwhips the inflation on other products as well. So, for a crucial industry like logistics, GST is the need of the hour.
Better logistics = Better nation
Logistics is considered as most crucial for any nation’s development. Level of economic activity in country and scale of logistics are positively correlated. Ecommerce penetration and schemes like Make in India will push it even further. If taxation regime is simplified through GST, it will prove to be major reboot for the logistics industry. GST will also be a key enabler for businesses to reorganize their supply chain, in accordance with various business considerations.
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Here’s why this is the worst time to be in the business of hospitality in India
The current system of indirect taxation in India is very complex and logistics faces it the most. Each of the 29 states levies different magnitude of taxes when goods are moved across their borders. Both central and state taxes sums up to around 25-27% on goods. Pratish Sanghvi, Co-Founder of Grab a Grub Services Pvt. Ltd said that once GST implementation gets in place, existing taxation structure will dissolve and a new unified structure for all states will come into force. Hence, the effective rate is expected to come down to around 19-21%. This reduction of 6% in taxes will count a lot for the final burden bearing consumers. Grab is India’s first and leading last mile delivery service for businesses and merchants to bridge the gap between them and consumers. GST will lead to a total reduction of 20% in other logistics cost like warehousing, freight forwarding etc.
However Sanghvi cautions the major challenge before the government is to arrive at a revenue neutral rate to ascertain no adverse effects on the revenues of central and state governments after the implementation of GST. Furthermore, the government has to protect the interests of all the stakeholders including the ultimate consumers.
Structural re-engineering of the logistics network
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GST will remove process bottlenecks. A recent study revealed that out of the total transit time taken by a truck, it remains idle for 40% of the time due to border checks for octroi and other entry barriers. After removal of this hurdle, quicker movement of goods and increased number of deliveries will ensure operational efficiencies. Also, an estimated cost of 25% can be saved, which is incurred due to stoppages and idleness.
“Currently to avoid interstate taxes, businesses build warehouses near their manufacturing facilities, ignoring the geographical disadvantages. After GST implementation, businesses will warehouse their goods at most suitable locations without the fear of multiple taxes,” said Sanghvi.
Government has also allowed 100% FDI in warehousing. It will be much easier for foreign players to comply with the single point GST norms than with the previous ones.
Trucking business: the major blind spot
“Trucking business was always unorganized and fragmented, and it hasn’t changed much in recent time. Local businesses are largely dependent on the nearby transporters which usually rip off the users despite poor quality and inefficiencies,” Singhvi informed.
Advertisement
There are many startups such as Rivigo and Blackbuck that are eyeing a complete revolution of the industry. A cost effective mix of higher efficiencies and lower transit time is the product they are going with into the market.
India vis-à-vis global benchmarks after the implementation of GST
GST has received critical acclaim globally. There are more than 160 countries around the world that have already implemented GST. After a delayed roll out, drastic changes will take place in India’s economic future. Globally, the average rate of GST ranges between 15-20%. We are yet to decide a revenue neutral rate, but the vibes are positive for logistics industry.
In India, the operational inefficiency exists in the core and costs are on a higher side than other countries. This bullwhips the inflation on other products as well. So, for a crucial industry like logistics, GST is the need of the hour.
Better logistics = Better nation
Advertisement
Logistics is considered as most crucial for any nation’s development. Level of economic activity in country and scale of logistics are positively correlated. Ecommerce penetration and schemes like Make in India will push it even further. If taxation regime is simplified through GST, it will prove to be major reboot for the logistics industry. GST will also be a key enabler for businesses to reorganize their supply chain, in accordance with various business considerations.