365 Days of GST in Logistics

Before GST was introduced the tax structure was a haphazard collage of multiple indirect taxes levied at different intervals making the whole structure susceptible to tax cascading and undeniably complicated.

Also, before GST was rolled out, the complicated tax structure and overbearing paperwork forced a lot of players to shell out money and resources on tax compliance.

All of this just lowered the movement of freight moving in and around the country. Not to mention how all this had a direct impact on costs and also the adverse effects caused to the environment.

Now, the numbers speak for themselves. The Indian logistics and freight forwarding sector was one of the main beneficiaries of GST. At this time the Indian logistics market is projected to reach a whopping $307 billion by the end of 2020. Currently, the Indian logistics segment contains four major segments.

Industry professionals will be glad to know that according to a recent research by Care Ratings, the estimated growth of the Indian logistics industry is likely to grow at a CAGR (Compound Annual Growth Rate) of 15-20 per cent between 2019 and 2020. This is also due to the fact that GST alone will be responsible for further reducing logistics costs from the present levels we see, depending on the further reforms they intend on making.

We’re all well aware of the pivotal role that logistics and transportation play in the health of the GDP of the country. The logistics industry of India alone contributes close to 13-14 percentage of India’s GDP whereas, surprisingly, the global average for most developed economies is just 8-9 per cent. Transport is what facilitates trade and therefore invariably helps raise the GDP of the country. The higher and more rapid the movement of trade across marketplaces, the more will be the GDP.

GST brought in much-needed reforms in one of the most unorganised sectors of the country, and the biggest proof of that is in trucking and warehousing. This tax reform helped speed up the movement of the entire trucking industry. Switching to GST has led to reducing the turnaround time by almost 20 per cent as border checkpoints were dismantled. Another contributing factor to that was the introduction of the e-bill. For those who aren’t familiar with the concept of an e-bill (or e-way) bill – It is a document that the person in charge of conveying goods is required to carry with him/her if the value of those goods exceeds INR 50,000. This document is mandatory under the GST regime and can be generated from the GST Common/GSTN Portal. This bill needs to be generated before the transfer/movement of goods begins.

The introduction of the e-way bill has brought transparency in transportation. Let’s take an average Indian truck as an example. The average Indian Truck covers close to 50,000 to 60,000 kilometres a year as opposed to 3 lakh kilometres an average truck does in the United States of America. This is due to a lot of reasons, road conditions, worker facilities, but most of all it’s because of inter-state checkpoints.

The harassment by state transport and tax authorities have come to an end as GST rendered the inter-state check posts redundant.

The impact of this has been much higher in states like Bihar, Uttar Pradesh, Maharashtra, and Madhya Pradesh. Because these are the states that were particularly difficult for truckers to move through, a year ago.
ICRA conducted a survey with over 50 major transport companies of the country and found that the road-transport turnaround time has reduced by close to 18-20 per cent.

This is because harassment at interstate borders as well as checking of clandestine movement of goods has come drastically down since GST and the e-way bill.
It’s evident that travel time of long-haul trucks and other cargo vehicles has dropped by at least one-fifth of the total time. When the movement of freight becomes hassle free, that is what will cost the demand for high-tonnage trucks. And that will, in turn, reduce the cost of transportation of freight.
However, since the introduction of the e-way bill, and even with initiatives by the government to popularise if, with truckers, industry professionals, and the public, there were some states that adopted and implemented it later than the rest. For example, Punjab and Maharashtra were two states that implemented it just recently so it will take another quarter to fully see the results of the e-way bill and its impact on transportation.

GST brought about a revolution in the warehousing sector in India. Experts are of the opinion that the warehousing sector will grow by at least 100 per cent by 2021. JLL India, a reputed real estate firm, estimated that warehousing space in India will increase by 112 per cent by the end of 2021. This is because GST is boosting both the hub and spoke model as well as the MMLP (MultiModal Logistics Park). Some experts even say that India will witness over 20 per cent CAGR in warehousing and will also have about 25 new MMPLs in the near future.

State boundaries are diminishing because of the positive effects of GST, boosting warehousing activities. The total warehousing space in the country (in 2017) of garage A, and

grade B, warehousing was approximately 140 million sq. ft. It’s expected to jump to 297 million sq. ft.

One of the most noteworthy impacts of GST in this sector is that it will facilitate companies to break away from traditional distributions (like Carrying & Forwarding distribution models) to new age distribution networks.
Companies are also likely to shift their focus from tax saving practices to improving efficiency in the supply chain through smaller warehouses. Another report estimates that a sizeable investment of close to 45,000 crores will be deployed for the creation of smaller warehouses across the country during 2018-2020.

While the effects of GST have been a boon for the logistics industry, there are however some issues and glitches that still need addressing. This is specifically with respect to the GSTN portal.
The Federation of Indian Chambers of Commerce and Industry (Ficci) conducted a survey with large corporate giants as well as MSMEs (Micro, Small, and Medium Enterprises) about their experience of the first six months after the GST rule was rolled out. While almost all the participants appreciated the benefits of GST with respect to the inter-state transfer of goods and reduction in transportation time. A lot of participants also pointed out the

issues they faced with the GSTN portal. According to some, cumbersome processes, documentation, and cost of compliance are still major issues.

They mentioned problems like the delayed reflection of updated data and payments, the portal’s inability to read certain file formats, heavy files and lack of provision to correct or change errors is a still a major challenge. Respondents suggest a complete revamp of the government portal to ensure that they everything is done to make the procedures easier and more user-friendly.

   

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By | 2018-08-21T06:48:46+00:00 August 20th, 2018|Freight Forwarding|0 Comments

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