GST Rollout: Logistics Firms Need A Strong IT Backbone
Logistics is the spine of all industries, globally. This industry is worth over a $1 trillion dollars, accounting for approximately 10 per cent of total amount spent on all goods and services combined. Despite its size, logistics is an unorganized sector, vis- à-vis mining, retail and pharma.
The state of Indian logistics is better when compared with other developing nations while India could be at par with the current benchmarks set by USA in a decade. With the commencement of GST, the logistics industry will undergo a lot of changes. Certain segments within logistics are going to have a very positive impact because of GST. Three of the organized segments which we believe will have the biggest positive impact is warehousing, e-commerce logistics and less than truckload companies. However, GST is going to be highly challenging for full truckload companies who will face difficulties to comply with the e-way bill rules on time.
The announced GST rates are as expected and its impact on e-commerce merchants, exporters and importers is minimal. Despite the total tax percent on logistics is rising, the net impact on logistics businesses would be positive due to the input credit claimable on expenses which couldn’t be claimed for in the past.
For most logistics services like e-commerce logistics, warehousing and air freight (export), the tax rate is 18%, which is an increase from the current 15% which includes service tax and cess. Services like ocean freight and road transportation are in the 5% slab. Yet, a few essential services which haven’t been exempted will be discussed by the logistics trade bodies with the government.
For the trucking sector, the most critical changes are the modified e-waybill rules, which will impact operations of almost all entities in the supply chain. The current e-waybill rules aren’t practical to implement and leaves a major room for loopholes. We believe there will be modified rules announced after the GST council meeting in June.
Once GST comes in, a lot of non-ecommerce players which are traditional businesses are going to change their entire supply chain strategy. Today, you need to have big warehouses in every state, because of the regulation and because of the entire tax planning. So now you can work with another warehouses
The old exemptions and reverse charge rules have been continued and that’s positive. As an example, the shipper will be paying GST on behalf of the trucking company who transports goods, like today. The most critical modifications which we wait for are the modified e-waybill rules, which will impact operations all companies in our sector.
Despite these positive news, a few essential services haven’t been exempted and will be discussed by the logistics trade bodies with the government. For the unorganized sector, a lot of handholding will be required and it will at least take a minimum of six months for the unorganized sector to fully understand the gap that they have between their operations and the compliance need.
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