In the recent GST council meeting on 24th Dec 2018, a large number of items classified under the 28% slab was rationalized to the 18% slab. From 225 items in the 28% slab where it began, it is now down to 30 in that category. The Finance minister said that the levy was fully in place and the first set of rate rationalization was complete. With the current rate cuts, he broadly indicated that the country will have only slabs of ‘zero’, 5% and a standard rate (between 12-18%) with luxury and sin goods as an exception.
While progressive and concerted efforts are being demonstrated by the government with the GST implementation, it is pertinent to really check what’s happening on the ground as regards to Logistics and Supply Chain. Is the dream of unified tax regime (one market one country) really being realized?
From a Logistics perspective, abolition of State level VAT, check-posts have markedly reduced the turnaround time in transportation. All the wastages resulting from long queues at state check posts, documentation time have been eliminated. This has improved efficiency and brought down costs. Eg. A road shipment by trailer from Chennai to Delhi earlier used to take 5-6 days and after GST the time of delivery has been truncated to 3-4 days (depending on speed and driver rotation in turns)
In the Warehouse sector, it was expected that GST implementation will see consolidation of warehouses. It has been observed that that warehouse consolidation has been happening from sector to sector depending on the on-ground nuances or requirements. Companies and Corporates have considered ‘product availability’ and ‘customer servicing’ as the key considerations while consolidating warehouses.
The implementation of E-way bill has been received positively by stakeholders in Logistics. It has helped organize, streamline and reduce paperwork due to digitization. While implementation of GST and E-way bill has come about with requirements of up-skilling, compliance and penalties, however the industry while looking at short term addition in costs have reposed faith in the Long term benefits that GST implementation would bring in.
Logistics in India is a fragmented and is handled by a large number of Freight forwarders and 3 PL players. Introduction of GST has compelled these players to register themselves and avail of the benefits of Input Tax credit thereby driving formalization in the sector.
The Auto sector is also wary on the requirements of larger sized trucks and trailer requirements that the change will bring about due to planned Logistic parks and warehouse consolidation. However, the vehicle sales numbers are yet to show the shift in the model preference as of now, however it’s an eventuality waiting to happen.
While there is some grief due to the pending or delayed release of Tax credits, since Logistics has players deploying upfront working capital and therefore capital cycles get very sensitive if delayed. Section 13 (3) dealing with Air cargo export is a bone of contention on the application of the tax and several suggestions have been put forth to the Finance ministry to accommodate a change to make India exports more effective.