Addressing Ambiguity In GST For Express Industry: Action Points For The New Government

The Indian express delivery industry has been one of the key beneficiaries of the single goods and services tax (GST). According to a study by Deloitte, the industry is expected to grow at a compound annual growth rate of 17% between 2017 and 2022. Prior to the GST, at inter-state checkpoints logistics service providers were required to show documents and pay octroi, entry taxes and local body taxes. These added to transit time and cost. More importantly, the requirements and taxes varied across states. The GST has done away with the system of inter-state checkpoints and studies have shown that this has led an increase in the travel time of trucks from 225 kilometers a day to 325 kilometers a day. As per industry estimates, the delivery time of goods has reduced by around 15-20%. The electronic filing of e-way bills was initiated to do away with physical paperwork, which is expected to lead to faster travel and higher efficiencies for road transport operators. The e-way bill will also lead to the creation of a large repository of data on inter-state transactions. The digitalized records can be used for efficient tax collection, risk management, and policymaking. 

In spite of these benefits, the express industry is facing a lot of uncertainties, which require urgent attention of the new government. The first uncertainty is related to Rule 138(7) of the Central Goods and Services Tax (CGST) 2017 which states that “Where the consignor or the consignee has not generated the e-way bill and the aggregate of the consignment value of goods carried in the conveyance is more than fifty thousand rupees, the transporter shall in respect of inter-State supply, generate the e-way bill on the basis of invoice or bill of supply or delivery challan, as the case may be”. The rule was probably initiated to prevent tax evasion but it has become a major challenge to e-way bill generation. The form for the e-way bill has two parts A and B; the consigner fills Part A while the transporter fills Part B with vehicle in which goods are travelling physically. E-way bill is mandatory for the movement of goods worth more than INR 50,000. If, for example, three SMEs have goods valued at INR 45,000, INR 25,000 and INR 30,000 respectively they are not required to fill up form A.  However, if the goods are shipped the transporter/courier company/express delivery company is held responsible for not filling up Part A of the form as the aggregate value of the goods is more than INR 50,000. Discussions with service providers show that they find it extremely difficult to convince their consigner to generate the Part A of the e-way bill, since they are not required to do so for consignments below INR 50,000. Instead of putting the responsibility on the transporter alone it is important to put the responsibility on the consigner to fill up Part A of the form.   

The second issue is that the e-way bill is generated for a fixed time. The validity of the e-way bill is based on distance and it does not take into account the hub and spoke business models of the express companies. Further, there is a proposal that validity of the e-way bill will be based on distances auto populated by pin codes of origin and destination. There are also concerns about the penalty equal to invoice amount to the transporters if any shipment is found in their facilities with invalid e-waybill. The e-way bill generation is not allowed on the same invoice number if generated once. While this may have been done to avoid incidence of delays or non-compliance, it creates day-to-day operation hazards for the genuine players. This issue can be resolved easily through use of technology and data analytics. The government collects huge data through e-way bill.  Data analytic tools should be used to examine compliances and distinguish between fraudulent cases and genuine issues.        

A third issue is that if there is any problematic shipment often the whole vehicle is detained for 4-7 days instead of detaining the non-compliant shipment. This can be easily resolved by the GST officials by taking custody of only the problematic shipment. If there is a storage issue then transporters can be required to hold the same in their warehouses based on a “Goods Detention Notice” and it will not go for delivery unless there is a release order from the officials. Thus, there are ways in which the tax collection department can work more closely with the transporter for efficient compliance as well as ease of doing business.  

With the implementation of the GST, India’s overall ranking in the World Bank’s Ease of Doing Business Index has improved from 130 in 2016 (pre-GST) to 77 in 2018 (two years post GST). However, India continues to rank poorly on the sub-indicator – “Paying Taxes”. While India’s rank in “Paying Taxes” has improved from 172 in 2016 to 121 in 2018, it is much below developed and developing countries such as United Kingdom, Germany, Malaysia and China whose ranks are 23, 43, 72 and 114 respectively in this indicator in 2018. Thus, in order to improve India’s Ease of doing Business Index to 50 and fully enjoy the gains of the GST regime, it is necessary for the new government to address the above issues.