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Lighthouse - September, 2016.

Impact Of Gst On Indian Logistics Industry

The logistics industry in India is growing slowly but steadily, with introduction of E- commerce , Economic reformation by proposed GST , Initiative like “ MAKE IN INDIA”. Today we will see what positive & negative impacts can happen in Logistics Market for Modi Government’s proposed GST which will be implemented from 2017 calendar year….

Logistic Industry in India is primarily categorized into warehousing, land/road transportation, freight forwarding & value added service in which transportation contributes almost 60% on whole logistics part in India followed by almost 25% on warehousing, 10% on freight forwarding & rest 5% on value added services.

Currently Logistic Industry is suffering from various issues like (a) Complex Tax structure within states in India ( b) Poor Infrastructure (c) Poor / strict Custom efficiency and procedure of Customs , thus being a lower cost service proving country actually logistics cost in India is higher than many countries compared to European Countries.

Positive impacts what we can expect for implementation of GST…

1.  Indian Road/ Rail transport will be highly beneficial due to removal of multiple/ combined taxes like State entrance Tax/ Chungi/ Octroi/ Exise Duty/ Countervailing duty/ Service Tax, Value added tax/ luxury tax etc.

Currently if we combine Centre & State tax for most of the goods it works out to be 26.5 %( Cenvat 14% & VAT 12.5%), whereas post GST implementation the same is expected to reduce to standard rate of about 18-21% which will be levied on most goods and all services.

2.  Due to trade barriers such as Entry Tax/Local Body Tax/OCTROI and other hurdles trucks lie idle for 30-40% as per schedule , whereas post GST this will be phased out and logistics time will be improved resulting in improvement in operational efficiency through quicker and increased number of deliveries along with reduction in logistic cost during the transit.

3.  Inter-state TAX in India forced corporate to create & maintain warehouses in each state, as per a recent study currently there are around 20-30 warehouses per company, one in every state resulting supply chain must longer & Cost inefficient, but after implementation of GST logistics costs are expected to be decreased at least by 2% which can result immense scope of improvement in India’s Supply Chain management industry.

Small but short term negative impacts of GST Implementation.

1.  Importers in India will face a hard time which they import goods from Outside India due to Implementation of GST, because after GST the current Educational & Excise Tax of 15% on Import Duty will be charged between 18-21 % resulting increase of overall Custom duty which will result in increased cost in Imported materials.

2.  Currently India is not fully IT oriented country , still there are a large number of Trade players who are not organized, they will face major challenges as Logistics Industry is highly competitive which leaves little headroom for margin improvement.

CONCLUSION:

Implementation of GST in INDIA is an overall  welcome initiative by the Indian Government for the collective growth of the country, the rollout of GST, in India would dissolve the existing various indirect tax structure, i.e. multiple taxes that is being split between center & state governments leading to reduction of about 20% of current logistics costs.

Due to high Import duty after implementation of GST, Indian manufacturing industry will look out for Indian sources for RAW MATERIAL, instead of importing, which will actually strengthening the Rupees in World market.

Deliberating on holistic view the implementation of GST would help the entire Logistic industry in improving the operational efficiency thus cutting the logistics cost & expanding the business prospect through consolidation of logistic players.

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