The passage of the 122nd Constitutional Amendment Bill finally paves the path for implementation of GST. Although the fine print of the legislation remains to be unfolded, the logistics industry is hopeful that it will bring about a transformation leading to economies of scale and reduction in inflation via an efficient supply chain.
However, for GST to be a game changer for the express delivery sector (and the logistics industry) it is critical that the importance of this industry be recognised by the government while framing the legislation, which can translate India into an efficient logistics hub.
India’s aspiration to be a logistics hub is marred by several cumbersome processes and administrative barriers. Under the current regime, international consignments are subject to tax, leading to export of taxes and double taxation in certain cases vis-a-vis other international jurisdictions which provide for zero-rating of all international consignments as well as ancillary services. Further, repetitive physical verification of international consignments leads to delays, thereby making India non-lucrative.
Therefore, it is advocated that the taxation of international movements be aligned with those of mature international GST regimes. This will substantially help India’s case for being a major transhipment spot.
The Model GST law and the current discussions indicate that service providers such as the express/courier services, would be required to obtain multiple registrations across states. Express services (like banks and telecom) are network operators having pan-India operations. Currently, these service providers are required to obtain one centralised registration under service tax and tax returns are required to be filed twice a year. Multiple registrations and the resultant multiple assessments/investigations/audits would result in a dramatic increase of tax compliance effort as also tax uncertainty. This could lead to multiple assessment and result in tax uncertainty as well litigations.
Multiple registrations could also lead to blockages since input credits could be denied though presently the sector enjoys seamless input credit mechanism.
Therefore, to avoid multiplicity of compliances, it is imperative that a single pan-India registration be allowed for the courier service industry.
Along with the single GST registration, inter-state border check posts should also go. Multiplicity of check posts creates huge inefficiencies in transportation. For the purpose of tracking the consignments, the government could consider introducing a central reporting mechanism.
There is also a need to rethink on Aviation Turbine Fuel (ATF). ATF unlike other petroleum products is primarily used by businesses such as air cargo operators or airline companies. These are service providers who are liable to pay service tax. As on date, ATF is subject to central excise duty which is eligible to be set off against output service tax charged by air cargo operators (excise duty charged on other petroleum products are not eligible for set off). The VAT charged on petroleum products is however non-creditable and a cost for the service providers.
The said tax, so charged, is not likely to be allowed as a set off against the output liability. Given the nature of the product, the fact that the same is used providing taxable services only needs to be recognised under GST and eligibility of credit of the tax either at the central or state level should be available for set off. In the event such credits are not granted the cascading impact will increase significantly, which would ultimately lead to inflationary repercussions.
It needs to be appreciated that the Express Industry is a labour intensive segment, employing a large number of people for its operations and impacts every aspects of economic activity in the India.The investment potential of this sector is also huge. Globally Express Delivery Services are a $350 billion industry. In India, the size of the industry is around $2.5 billion. So, with Indian economy on a take off stage the upside is huge. Hence, for the purpose of achieving governments objective of maximising employment opportunities and developing India into an economic power hub, it is imperative that the government should look into the requirements of this sector and the proposed GST regime is the best platform for the government to iron out all impediments of growth.
The author is chief operating officer, Express Industry Council of India
Views are personal