GST to help logistic cos reduce cost, time up to 20%
Caught in a bind over high operational costs and complex tax levies, the Indian logistics industry which is projected to grow at CAGR of 15-20% during FY 2016-2020, can perform even better under the new GST (goods and service tax) regime which is expected to reduce its operational costs by one fifth of the current costs.
The rollout of GST, in India would dissolve the existing indirect tax structure, ie, multiple taxes that is being split between center and state governments leading to reduction of about 20% of current logistic costs, says a report on the expected impact of proposed GST amendment bill, which is pending clearance in the Rajya Sabha.
An assessment of the Impact of GST on the logistics industry by Care ratings, a market research agency, besides the 20 % savings on operations, there is going to be an invaluable saving in terms of logistic time that could be as high as 40 % of their schedule.
Citing industry estimates that vehicles lie idle due to trade barriers such as entry taxes, local body taxes, OCTROI and other hurdles for 30 to 40 % of their delivery schedule, the report said there would be vast improvement in the logistic time after phasing out the border check posts leading to operational efficiency through quicker and increased number of deliveries along with reduction in logistic cost during the transit.
As per World Bank estimation Indian corporates can save upto 30-40% of logistic costs incurred due to stoppages at various tolls and check posts. Currently, each of India's 29 states taxes goods that move across their borders at different rates. Apart from that Corporate state tax of 2% is levied for inter-state goods transfer. The implementation of the proposed GST would put an end to all this as no varying structures would be allowed across states.
Besides getting rid of interstate tax burden which saw the emergence of lots of unorganized players in the sector, the new GST regime would usher in a consolidation in the industry that could see the emergence of major large players who can span the entire logistics chain.
Another fall out for the industry post-GST, would be in its warehousing segment, in which the existing interstate taxation system has forced companies to create and maintain warehouses in each state. At present, there are around 20-30 warehouses per company, one in every state, in addition to this 20-30 Carry & Forwarding agents per state making the supply chain longer and inefficient.
In the proposed GST system tax will be levied on transportation of goods and full credit will be available on interstate transactions. Logistic costs are expected to be decreased by 1.5-2.00% of sales on account of optimization of warehouses leading to lower inventory costs which are set up across states to avoid paying 2% corporate sales tax and phasing out of interstate sales tax.