The logistics sector plays a crucial role in the manufacturing and trading industry. It ensured that the global flow of goods, particularly essential items, remained unhindered during the pandemic. In other words, the logistic sector helps in the movement of goods from their origin to consumption. The rise of the Goods and Services Tax has reformed our economy in many ways. It aided in the organisation and set-up of some logistics and transportation sectors to speed up their entire processes, striking down the complex tax structure. Transportation, warehousing, freight forwarding, and value-added logistics are the four main areas of the Indian logistics industry. The new tax reform decreases transportation cycle time, improves supply chain and turnaround time, and leads to warehouse consolidation, among other things. The removal of interstate check posts is most beneficial to the business for improving transit and destination efficiency. Even four years after the GST implementation in India, the logistics sector remains a crucial area of concern.
This article addresses both the positive and negative impact of GST on the logistics sector since it has been implemented.
Positive impact of GST on the logistics sector-
• Hassle-free supply of goods and saves transit time
The most preferred way of transportation is by road. Typically, a truck spends 20% of its run time at interstate check posts. Reduced compliance at these Interstate check posts helps minimise transport hassles. VAT forms are no longer needed; the elimination of OCTROI has unclogged cities like Mumbai. A uniform tax structure without varying taxes saves transit time and ensures a smooth flow of goods. Moreover, low delivery time leads to a reduction in distribution costs by 10 to 15%, thereby dropping the final price of the goods.
• Boon to MSMEs
Due to a simpler return filing mechanism, MSMEs are now less reliant on tax professionals than under the previous regime. It was a great step to rationalise the composition scheme and introduce a quarterly reporting alternative for taxpayers with a turnover of less than Rs 1.5 crores.
• Better warehouse system
Due to the GST and other state entrance charges, businesses were obliged to set up and operate several warehouses in each state. GST eliminates the requirement for each state to have its warehouse. As a result, the logistics chain will be leaner and smarter. More FDI in warehousing will be encouraged as a result of this.
• Corruption in logistical procedures is being reduced!
GST appears to reduce the control of local booking agents and cross-border corruption by enabling a larger scope for impartial transportation that is equally beneficial to enterprises, consumers, and states by eliminating the side-lines of the parallel economy.
• High rate of acceptance of 4 Party Logistics
With the GST implementation, the 4PL idea will be expanded. India is now ruled by 3PL players. In the GST regime, the market has become more united. There are no longer any barriers in the form of inter-tax burdens, check-post compliance, or other formalities. This will help major logistics companies expand their market across the country. Adoption of 4PL with GST will enable them to manage the whole supply chain solutions without any issues. The 4PL service can consolidate its warehouses and inventories, lowering the overall product cost by lowering inventory and carrying costs.
Impact of GST on 3rd party logistics
3PLs will have to rearrange their operations when 4PL with GST is implemented to keep up with customer activities. 3PL's primary warehouses are now connected to their most significant clients via a geographically scattered network to avoid interstate taxes. Due to the integration of warehouse operations and the ability to accommodate long-distance consignments, this scenario is eliminated in the post-GST. Consumer-oriented businesses will reap significant gains over capital-intensive businesses, as the former have warehouses in many states to avoid interstate taxes.
Negative impacts of GST on the logistics sector-
Post-GST, the logistic sector has experienced many tax benefits but with few limitations, which are as follows:
The constant increase in the price of fuels which are raw materials for the logistics industry. Because fuel tax does not come under the purview of GST, both the state and central governments have been urgently trying to raise it to raise more revenue. India became the country with the highest taxes on fuel in May 2020.
With the impending introduction of GST, the logistics sector should begin investigating various new supply chain models with their clients while also developing a fully integrated ERP accounting system to uphold inventory supply management, as required under the GST regime.
The definition of "GTA" has been ignored by the Enforcement Authority of transportation under GST, resulting in the taxation of every transporter of goods.
Functioning of logistics under GST regime-
The present GST system contributes added advantages to the logistics industry, but there is a major drawback when considering the fluctuations of fuel cost due to inflation, as it is not a clear guideline from the GST component. In the past few years, the GST law helped boost the efficiency of the logistics and transportation sector. The aim behind GST implementation was to make the collection of indirect taxes in a well-organised manner. Many founders of Logistics companies found GST is speeding up the logistics sector rapidly. Fundamentally, GST can improve the efficiency of value chain participants in the logistics industry, resulting in more organised members in the sector. The GST system will only mature and progress when the government takes seriously the existing loopholes (such as corruption and other malpractices perpetrated by logistics companies) and corrects them as soon as possible. In a limited sense, GST has made this sector organised and made the supply chain faster in India and abroad.
Undoubtedly, we can say that the logistics industry has highly benefited from the GST system. We might ensure the long-term growth of the logistics industry through the use of new advanced technologies such as Big Data and cloud-based application platforms for improved consumer pleasure by logistics firms. The sector looks to the government for clarity and direction, especially after the pandemic, because a boost to the logistics industry may help the economy recover indirectly.
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Q. Is GST exempted for MSMEs?
Ans. According to a finance ministry official, businesses which have an annual turnover of less than Rs 6 crore are exempted from the new regulation. Micro, small and medium companies (MSMEs) are not required to pay a minimum of 1% of their GST obligations in cash.
Q. What is GTA?
Ans. Any person who offers service related to the transportation of goods by road and issues consignment notes, by whatever name is named, is referred to as a Goods Transport Agency (GTA).
Q. What are 3RD Party Logistics?
Ans. 3rd PL offers outsourcing services and provides inventory management, warehousing and distribution services to businesses in need, for example, Gati Ltd.
Q. What is the difference between OCTROI and TOLL?
Ans. Octroi' is collected on products that enter the corporation's bounds for use, consumption, or sale, whereas a 'toll' is charged for the use of roadways by both animals and people. After GST, octroi has been abolished.
Q. Is GST applicable to Logistics?
Ans. Services provided by a GTA in connection with the transportation of commodities (including used household items for personal use) are subject to GST at a rate of 5%(2.5%CGST and 2.5%SGST).
Q. What are the exemptions to transport services from GST?
Ans. Transportation of commodities by road, rail, water, etc., toll payment, air transportation of passengers, transportation of goods for less than INR 1500, etc.
Q. What is the starting limit for registration in GST?
Ans. A person who has a business with a gross turnover of more than ₹ 20 Lakh (for supply of goods) for a given PAN across the country would need to register under GST.