Impact of GST on Logistics Sector
By Rajesh Khanna – Chief Executive Officer,
RACE Innovations Pvt Ltd.
Goods and Service Tax (GST) – Taxation on goods and services consumed on value additional basis without any distinction is the directive in the Indian tax reforms with effect from 1st July 2017, anticipated to play a crucial role in integrating the fragmented logistics industry a major contributor in improving supply chain efficiency and product cost.
The 130 billion USD Indian logistics Industry growing at a rate of 15% CAGR, backbone of Indian economy is currently reeling under heaviness, making it an unattractive, reasons mainly owing to unorganised stature of the players, no clarity in the taxation, multi-layered effects, harassments at each crossover points all adding to cost to customer and productivity delays.
On the contrary, smaller regional logistics providers are going to face touch challenges in organising themselves in terms of registration, documentation, filing of returns to avail/pass on CENVAT credit to their end customers. The drive towards compliance may bring in some form of discipline in the so-called unorganised arena. Geographic specific transporters, clearing/forwarding agents, warehouse handlers are expected to get amalgamated with bigger players or driven to a leaner and disciplined outfit.
Major supply chain rejig expected in some the critical industries like pharma, white goods, e-commerce pertaining to warehouse, redesign of routes, adoption of new technologies. Post GST Implementation the supply chain will be totally rejigged, suppliers will be screened on their ability to pass on CENVAT credits, contract manufacturing getting attractive, remodelling of inbound/outbound logistics flow paths , 3PL/4PL/5PL gaining tractions with clarity to offer hassle free cliental services , comprehensive change in inventory planning in the total chain starting from raw material supplier, manufacturer, stockist, distributor, retail chain till it reaches the end consumer. Another interesting development anticipated will be leasing equipment industry will become more attractive on account of CENVAT credits, formidably supporting the logistics sector with high productive equipments specifically in the area road transport and warehouse handling.
Classification of logistics service provider as a goods transport agency (GTA) or courier service agency is a main debated discussion in the pre GST regime, reasons being the complicated procedures applicable on GTA services drives all operators to declare them as courier service agency. Post GST, there is expected to have a clear understanding, bifurcation of services, classification/ application of appropriate taxes enabling a seamless flow of credit in the entire chain.
The future of the Indian Logistics Industry is anticipated to be driven by customer-centric values, service excellence and reliability. Levels of Excellence/ reliability will be assured only if the complex elements in the supply chain is synchronised and works seamlessly. Until now the Indian logistics players have never been given the right platform, neither they have been appreciated and supported for their initiatives by the cost-conscious Indian market. With GST in place we expect more investments flowing in supporting new initiatives, further industries collaborating with logistics service providers (LSP) in setting the right platform to arrive leverage economies of scale, LSP’s removing deficiencies in the channel to arrive at a most competent value-based logistics service.
Footnotes
11PL – A first-party logistics provider is a firm or an individual that needs to have cargo, freight, goods, produce or merchandise transported from a point A to a point B. The term first-party logistics provider stands both for the cargo sender and for the cargo receiver.
2PL – A second-party logistics provider is an asset-based carrier, which actually owns the means of transportation. Typical 2PLs would be shipping lines which own, lease or charter their ships; airlines which own, lease or charter their planes and truck companies which own or lease their truck.
3PL – A third-party logistics provider provides outsourced or ‘third party’ logistics services to companies for part or sometimes all of their supply chain management functions.
4PL – A fourth-party logistics provider is an independent, singularly accountable, non-asset based integrator who will assemble the resources, capabilities and technology of its own organization and other organizations, including 3PLs, to design, build and run comprehensive supply chain solutions for clients
5PL – A fifth party logistics provider will aggregate the demands of the 3PL and others into bulk volume for negotiating more favorable rates with airlines and shipping companies. Non-asset based, it will work seamlessly across all disciplines.
