CONSEQUENCES OF IMPLEMENTATION OF GST ON THE LOGISTICS INDUSTRY

INTRODUCTION

The transportation industry may be a crucial segment of an emerging economy and important to the expansion of the economy generally. In India, which is one among the fastest-growing economies within the world, transportation contributes to 10% of the GDP (measured at factor cost). As per the newest national account statistics, transportation sector broadly comprises of railways, transportation by other modes, storage, and communication, of which the share of transportation by other modes and storage is 50% of total transportation segment and 6% of overall GDP. it's also estimated that India has one among the very best logistics costs within the world, at 13% of GDP. In China, the share of logistics cost is eighteen, mainly due to the dimensions of the geographic area and a GDP five times that of India. However, Indian logistics is constrained by inefficiencies within the road transport network and infrastructure; indicating that tons of potential exists in terms of growth of the industry in India. Within the transportation sector, the marketplace for third-party logistics (3PL) has been steadily growing over the years as companies are increasingly outsourcing non-core activities. 3PL services consist primarily of integrated and organised activities within transportation, storage, warehousing and other value-added services within these activities.

GST ON THE LOGISTICS INDUSTRY

Unlike the more mature markets like Europe and therefore the US, the Indian logistics industry, especially the road transportation sector was primarily fragmented and dominated by the unorganised sector consisting of the many family-owned enterprises. However, with increased outsourcing, services are increasingly getting more specialised and bundled to supply value to the customer, encouraging the expansion of 3PL service providers. during this context, firms are increasingly faced with the challenge of managing complex supply chains in terms of the range of activities to be managed and knowledge to be processed. However, the complicated tax structure in India has contributed to increasing distribution costs, preventing the achievement of economies of scale. This paper examines the post-recession trends in profitability within the transportation sector, primarily transport logistics, and therefore the emerging models in terms of the complexity of the logistics network. employing a sample of 201 companies from Prowess database, the paper estimates an econometric model to analyse major determinants of profitability within the transportation sector and derives implications for future growth.

GST Applicable to Logistics

Although initially, the logistics sector started by provision of transportation services, logistics services are increasingly becoming more complex in scope as firms begin to dump non-core services, so as to enhance their profitability. consistent with the 18th annual 3PL study by Langley and Capgemini (2014), the foremost frequently outsourced activities are domestic and international transportation (81% and 78%, respectively), warehousing (73%), freight forwarding (62%), and customs brokerage (57%). because the activities get expanded in scope, there's got to understand the broader concept of how logistics has evolved within the context of managing the whole supply chain which incorporates not just flow of products and services, but also value being added at each stage of the availability chain.

GTA services (including transportation of used household goods for private use) attract a GST rate of either 5 per cent (2.5 per cent CGST, 2.5 per cent SGST), or 12 per cent (6 per cent CGST, 6 per cent SGST). the speed of 5 per cent is subject to the condition that service providers haven't taken input decrease (ITC) for the tax charged on the products or services utilized in supplying the service.

The GTA provides service to an individual in reference to transportation of products by road during a goods carriage, which may be a composite service. The composite service may include various intermediary and ancillary services, such as, loading/ unloading, packing/ unpacking, transhipment and temporary warehousing, which are provided within the course of transport of products by road. These administrations aren't given as free administrations however as subordinate to the chief help, specifically, transportation of items by street. The receipt gave by the GTA for giving the said administration incorporates the value of middle person and subordinate administrations. in sight of this, if any delegate and subordinate help is given regarding transportation of items by street, and charges, assuming any, for such administrations are incorporated inside the receipt gave by the GTA, such assistance would shape a piece of the GTA administration and wouldn't be treated as a different stock. Indeed, any help gave close by the GTA administration that is a piece of the composite assistance of GTA will be burdened close by GTA administration and not as independent supplies. In any case, if such accidental administrations are given as isolated administrations and charged independently, regardless of whether, inside similar receipt or separate solicitations, they will be treated as discrete supplies.

Impact of GST on the Logistics Industry

In the current tax system, central sale tax (CST) is paid on interstate commerce of products. 2% standard rate of CST is levied and distributed to exporter state because it is origin-based tax. The input credit of CST is often offset with CST liabilities only. CST is paid only on interstate commerce of products and not on supply (transportation) of products. So, to avoid this tax large corporates build their own warehouse in several states and transport their goods among states without paying CST which finally results in decreasing in cost of their product. due to this tax dodging through warehousing by big corporates growth of small and medium enterprises hampered and that they cannot survive within the market. But, in proposed GST tax regime IGST is levied on interstate commerce and provide (both) of products and services. thanks to this an efficient logistics system will come up which can prevent the tax dodging through warehousing by big corporates. this may protect small and medium enterprises from the unhealthy competition of massive corporates.

GST may be a tax neutral country, eliminating time-consuming procedures for a border tax and paid checks and inspiring cross border deliveries. As a result, the logistics costs for companies that produce bulk goods are reduced. These costs are often crucial for the survival of the MSME.

The Logistic industry forms the backbone of the economy. we will fairly assume that a well-organized and mature logistics industry has the potential to shoot before the “Make in India” initiative of the govt of India and features a positive impact on the economy. Simultaneously GST will help the ecom sector’s growth but the long-term effects are going to be particularly interesting because the model GST law specifically proposes a collection at source (TCS) mechanism.

Classification of the logistics service provider as a goods transport agency (GTA) or courier service bureau may be a main debated discussion within the Pre-GST regime, the rationale being the complicated procedures applicable on GTA services drives all operators to declare them as a courier service bureau. Post-GST, there's expected to possess a transparent understanding, bifurcation of services, classification/application of appropriate taxes enabling a seamless flow of credit within the entire chain. So far, logistics players in India are maintaining multiple warehouses across states to avoid CST levy and state entry taxes. Most of those warehouses are operating below their capacity and thus adding to their operational inefficiencies.

However, once GST sees the sunshine of the day, most of the present challenges of this industry are going to be a story of the past as India will become one single market wherein goods can move freely inter-state with none levy. this may further bring warehouse consolidation across the country and that we can witness mega logistic hubs and high investments in infrastructure wherein 100% FDI has already been allowed. As an outcome of GST, warehouse operators and e-commerce players have already shown interest in fixing their warehouses at strategic locations like Nagpur, which is that the zero-mile city of India and is well connected throughout. We are bound to witness more transformations happening as we proceed. Initial uncertainties, courtesy goods and services tax (GST) could affect the profitability of the logistics sector within the short run, but operational efficiency is sure to improve within the end of the day. The logistics sector broadly comprises the road transport sector (consisting of unorganized small businesses, trucking, fleets and enormous transport companies), the storage and warehousing sector and eventually third-party logistics (3PL). These are often further classified into big and little players and asset-heavy/light companies. Given this classification, comparing industry performance as an entire may be a complicated exercise. We tackle this by analysing data concerning 166 companies during 2010-2015 from the Centre for Monitoring Indian Economy (CMIE)’s an industrial database to reach some useful insights into the industry’s performance.

We glance at two key performance measures profit after tax (PAT) as a percentage of income and profit before interest, taxes, depreciation and amortization (PBITDA) as a percentage of income. Between 2010 and 2015, PAT has declined for all sub-sectors and shows volatility for the logistics and therefore the storage sector (see graphic). PBITDA is a crucial measure that reflects operating efficiency and ranges between a coffee of seven for the road transport sector to a high of roughly 20% for the storage sector.

CONCLUSION

From the above analysis, it's clear that the implementation of GST will have a big impact on the logistics sector in India. If GST is correctly implemented, then it'll have a double positive impact on the logistics industry that's logistics costs will come down and logistics efficiency will increase both within India and exports. So, the most objective of logistics management, that's customer satisfaction a minimum of logistics costs, are going to be achieved with the implementation of GST. The GST implementation also will cause the emergence of organized service providers since taxes won't be added costs for the business.

With the implementation of a unified GST, firms need to quickly develop strategies to reconfigure and optimise their logistics network so as to realize cost efficiencies. The logistics sector is one among the key beneficiaries of the GST policy, with a discount and consolidation of network points within the hub and spoke system. there'll be greater scope to take a position in capital intensive technology and make a paradigm shift from labour-intensive processes to more capital intensive and automatic systems. Firms that are ready to make the shift are going to be ready to survive and grow organically. Regulatory regimes which will facilitate the method of consolidation of the Industry will certainly pave the way forward for the industry.