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in Business - 30 May, 2017
by Curtis - no comments
New GST Regime Favourable To Organized Logistics Companies

The new indirect tax regime  or Goods and Services Tax (GST) is expected to improve the flow of goods because of the reduction in turnaround time since VAT-related check posts will be removed. GST implementation will also lead to higher preferences for organized logistics companies. However, the higher costs resulting from GST implementation will be difficult for the unorganized logistics sector to comply with.

GST is also expected to reduce truck stoppage time by 15% to 20% and will have a significant effect on the way that goods are transported and stored across the country. According to domestic rating agency Icra, a more efficient and organized logistics industry will evolve gradually.

As the additional 2% GST levied on the inter-state sale of goods is eliminated, warehouse location will no longer be based on tax considerations but demand from customers. This is expected to result into a consolidation of warehouse networking and a shift towards the “hub and spoke “model which is fewer but with bigger trucks to move between large warehouses.

The implementation of GST will be favourable to the organized logistics companies because transporters will be required to be GST compliant so that their customers will receive input tax credits. At present, 90% of truck fleet is owned and managed by small operators but after GST, there will be a shift from independent transport operations to attached fleet for the organized logistics companies.

The forthcoming GST regime will encompass many state level taxes which include central sales tax and value added tax. At the central level, taxes that will be subsumed will consist of central excise duty and service tax. This is bound to create a level playing field between the express and the traditional truck service providers because of the input tax credit.

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