GST: It’s really painful

The pain in the logistics industry in Goa is due to GST. Initially it was thought that GST was simple, neat and would be an easily implantable act. With time however the complexities are staring everyone in the face.

The logistics industry realised a forthright ago the GST tax payable on renting of handling equipment was 28% while in the previous service tax regime renting hiring of any equipment was at the rate of 15%. The logic being applied is that the high rental rate of GST should be the same as the GST paid at the time of purchase of the machine. Now in order to hire a crane, one will have to pay 18% while forklift will be charged at 28%. Now, one will have to keep two bill books for such transactions thus adding to the paper work.

These kinds of changes and anomalies in the GST rates can lead to a disruption in the tax chain. The government must move quickly towards a unified tax regime to ensure that it is important that classification problems are nipped in the bud. This will be the only way that manufacturing and services efficiency will come into the system which was the original intent of the GST. 

Another huge problem being faced is that logistics service providers who operate in multiple states have to actually separately register in each of those states. It baffles me as to why we could not have one common unified registration network. A central portal instead of this scattered system of registration.

The other problem of e-way bills seems to have been arrested swiftly by suspending it till April 2018. The GST council must take a long hard look at the concept of e-way bills and whether it should be reintroduced. Massive disruptions will take place if it is done.

However, if one were to weigh the pros and cons of the reformed tax policy, it would come to light that the benefits far outweigh the negatives. In any event, the impact of GST cannot really be pigeonholed as it will most likely have far-reaching effects on business and consumerism as a whole – from pushing commercial players to adopt technology and advanced tools (such as automation) bringing in more precision in the logistics chain, to neatly organising warehousing and freight machineries and optimising their geographic strengths, from providing the much-needed thrust to existing participants looking to scale up, to making the industry accessible to new entrants; mergers, acquisitions, domestic and foreign investments galore, GST is a disruptive force on the surface of the current ecosystem that spells much hope, efficiency and prosperity for the entire logistics sector in general.

If a JLL study is to be believed, India’s logistic sector is expected to reach a total worth of $200 billion by 2020. While it is too early to consider GST as an absolute saviour in the face of the numerous challenges cited above, this radical shift in the country’s taxation policy admittedly has some indisputable benefits to offer. Increased efficiency in inter-state transportation of good at reduced costs – GST impact is most likely to be felt in this area, by reducing lengthy clearance processes and complex paperwork at numerous inter-state points to a thing of the past. This automatically means drastic cut in travel time as well as sizeable cost-cutting in logistics by almost 30-40%, as estimated by a World Bank report. 

Ramping up on the speed and reduction of expenses of goods’ movement in turn means a great boost to the GDP by approximately 100-200 bps and opening up of numerous commercial opportunities, as per industry experts. Overhaul of the Supply Chain Management via consolidation of warehouses – A lesser discussed effect of the GST, and yet, the logistics industry would stand nowhere without organised, robust warehouses. 

With the implementation of the reformed tax structure, sweeping changes are expected to seep through this segment, with companies vying for overall operational efficiency than mere tax efficiency. With GST having rolled out, companies will now find the global hub-and-spoke model for freight movement much more feasible. This means fewer warehouse centres in strategic locations instead of smaller ones scattered in each and every state; in turn, leading to less time wasted at multiple points, less paperwork and faster movement of goods, not to mention, a central regulation percolating down to the many distributors via the secondary despatch model. I have articulated these points in the past and I believe that there is much good in the GST but the road ahead is long and hard and much attention has to be paid as we traverse the hard yards ahead