The emerging post-GST scenario looks optimal in formalising the transportation and logistics industry to operate as a common business unit.
The emerging post-GST scenario looks optimal in formalising the transportation and logistics industry to operate as a common business unit. GST has ended cascading tax and tedious documentation and enabled simplicity by redesigning supply chain management to take advantage of scale economies. However, the legislation does characterise some pitfalls as well. While the removal of check posts and octroi stops will lead to significant reduction in transit time of trucks and improve vehicle utilisation due to faster turnaround time, the general rise in the cost of operations—like fluctuations in diesel and freight prices—is unsettling. More so, the industry has insufficient integration of transport networks, information technology, and warehousing and distribution facilities, resulting in poor distribution of demand and supply and poor fleet mobilisation. Traditionally, the transport and logistics sector was designed and structured based on the state taxation system, which made it inefficient and cumbersome. With GST, the entire transport and logistics infrastructure in India will become more streamlined and optimal in terms of its structuring. Greater up-time for trucks, less idle hours, faster turnaround and a more optimal warehousing structure will be the major advantages of GST for the transport and logistics sector. Furthermore, post-GST implementation has good news for maximising the road traffic movement efficiency across the country by filling up serious infrastructure gaps. The enormous infrastructure plan, including the recent Bharatmala project, will not only boost logistics operations in terms of better demand distribution, reduction in distribution value chain, better fleet mobilisation and employment opportunities, but it will also contribute about 3% to the GDP. With GST, the curtailment of layers of movement of goods is inevitable, which will reduce the unorganised elements in logistics.
GST will empower the transportation and logistics industry to employ efficient practices such as bulk-breaking and cross-docking from a central location. This will generate an increased investment from retailers and warehouse companies betting on GST, transforming the nation’s logistics space. For transport services, the impact of GST in terms of cost can, at best, be neutral, as the main input cost is fuel, which is outside the purview of GST. Businesses hiring the services of transporters cannot claim input tax credit, so there is a possibility of big players exiting the pure transportation business and getting into more value-added services. Since GST has increased from 15% to 18% on warehouse, storage and other labour services, a third-party logistics provider has more incentive to claim input tax credit. This can result in consolidation in storage and warehouse sector. With a more streamlined IT system and well-coordinated documentation at the entry points ready, in the long-term there will be reduction in transportation delays, improvement in operational efficiency, and cost of designing a logistic network will be less complex. Fundamentally, GST can solidify the efficiency of value chain players in the logistics and transportation framework, making it more organised. We could see the emergence of a few large players who can span the entire logistics chain. Predicated on a single GST implementation, one can envisage the emergence of key warehouse hubs—putting a defined structure to the logistic activity. And focused on making the transportation industry more specialised, principal transporters will connect the manufacturers with hubs. Then there will be subsidiary transporters who will move from hubs to distribution centres. Finally, there will be last-mile transporters who will ensure smooth customer delivery, resulting in higher competitiveness, more efficient sourcing and organised trucking. To bring alignment of value-added services in the transport and logistics space, there will be an increase in compliance costs owing to top-heavy documentation when filing returns. And last but not the least, the government needs to improve the GSTN for the logistics industry to begin moving forward, without rampant corruption and under-invoicing. The GST regime will only become matured, going forward, when its cascading effect is realised in all the cities of India. Also, the transportation and logistics sector will increasingly be in alignment with value-added services industries to scale up its operations. So, the qualified consensus to the post-GST impact on this industry is that it takes time to see practical results.
Author is Co-founder& CEO, Trukky.com