Launched at midnight of June 30th 2017, Goods and Services Tax (GST) subsumed multiple indirect taxes like excise duty, service tax, VAT, CST, luxury tax, entertainment tax and entry tax into a single unified tax.
GST is levied on manufacturing, sale and consumption of goods and services in India and hence, will impact the complete supply chain and logistics of product delivery. Warehousing, e-commerce logistics and less than truckload companies are the three organised segments that will be positively impacted by GST.
Despite the increase in total tax percentage on logistics, GST will enable claiming of input credit for any tax previously paid in the supply chain resulting in a net affirmative impact. Unlike the earlier trend, logistic decisions under the new regime will be taken based on operational efficiency and not tax optimization considerations. This will help in development of logistics infrastructure and investments to the next level. Abolishment of the entry tax and easier tax compliance procedures due to GST are expected to decrease the transit time for inter-state transport by 5-7 hours. A further reduction in the logistics cost could be expected as almost 65% of India’s freight moves by road.
Supply chain can be made more efficient under GST if industries opt to consolidate their warehouses (Hub-and-Spoke warehousing) and set up larger facilities.
With GST, zero rated supplies will be applied to International freight (by air or sea). Since transportation fuels are outside the purview of GST, Input Tax Credit will not be permitted. A company which has multiple establishments, the ‘location of supplier’ and the ‘location of recipient’ is debatable in determining whether the supply is an intra-State or inter-State. Reverse charge is one of the new features of GST, where the recipient is liable to pay tax on imports of services and intangible properties instead of supplier. Also, the concept of valuation for services in related party transactions has been introduced.
FMCG sector is also one of the sectors that will be benefiting from GST. Distribution costs are expected to drop from 2-7% (of total cost) to 1.5%. Also there will be a cost reduction in terms of transportation and storage of goods because of smoother supply chain management, payment of tax and removal of CST, making the consumer goods cheaper.
GST is expected to be a key enabler for increased prosperity. A successful implementation of GST will attract foreign investors on grounds of increased creditworthiness, lesser compliance and procedural costs in the taxation sphere along with removal of complexities which earlier made them reluctant to invest.