‘GST Implementation Positive Development For Road Logistics Sector’

The implementation of Goods and Services Tax (GST) is likely to have a positive impact on the way transportation and storage of goods happens across the country, as stated by Indian credit ratings agency (ICRA) in a statement.

Indian real estate developer House of Hiranandani’s Chairman and MD, Surendra Hiranandani, said, in a statement, “The logistics sector which is a vital link in India's development is expected to see large scale investments. This will have a multiplier effect on all the sectors of the economy and further make India an attractive place for investments.”

ICRA said GST would have three major implications for the logistic sector – consolidation of warehousing network, higher degree of tax compliance with business moving away from un-organised transportation service providers to organised sector, and creation of level playing field between transport services providers.

1. Consolidation of warehousing network
As the additional 2 percent central sales tax (CST) levied on inter-state sale of goods cease to exist warehouse location would no longer be based on tax considerations and instead would be based on demand considerations – this would also result in consolidation of warehouses.

ICRA expects that over time there will be a shift towards a ‘hub and spoke’ model in which fewer but bigger trucks will move between bigger warehouses. In addition, flow of goods is expected to improve with reduction in turnaround time as value added tax (VAT) related check posts will be removed. It may lead to 15-20 percent reduction in the truck stoppage time.

2. Higher degree of tax compliance
GST may lead to higher preference for organised logistics companies because as transporters will be required to be GST compliant for their customers to receive input tax credit (ITC). The unorganised sectors lack the necessary systems as they have been outside the tax net. Furthermore high costs related to GST implementation will make it difficult for them to be GST compliant.

3. Creation of level playing field
In the present tax regime, a 15 percent service tax is levied on express cargo services whereas the tax applicable on goods and transport agents (GTA) is only 4.5 percent (after 70 percent abatement). Thus, the pricing disadvantage on account of differential tax rates will be eliminated when customers will be able to avail ITC on transportation services.