The logistics industry is the backbone of the Indian economy. The Indian Logistics Industry is home to 45 Million people. However, according to the World Bank’s Logistics Performance Index 2010, India is in 47th position out of 155 countries. India spends approximately 14% of its GDP on logistics which translates into USD 140 billion. This industry is growing at a 20% rate vis-à-vis the average world logistics sector growth of 10%, which will further add to spending on logistics costs. Let’s find out the Impact of GST on the Logistics Industry.
Statistics show that transportation costs in India form a third of the total logistics spend across different sectors. It is constantly rising due to inefficiencies at various levels in the entire system, which makes logistics a high-cost and low-margin business. It is dominated by unorganized players, while organized sectors are responsible for only a 6% share. Multiple warehouses, inefficient distribution, infrastructure gap and, most importantly, the non-uniform tax structure made it more vulnerable.
How was the Logistics Sector Affected by the Interstate Tax Regime?
According to data, Indian truck drivers move freight approximately 280 km/day, whereas the world average is 400 km/day and the US does 700 km/day due to prevailing tax laws. One of the reasons behind this. Drivers spend 60% of their time off the roads negotiating check posts and toll plazas. There are approx 650 check posts & 11 types of taxes on road transport in the country. Annually, Fuel worth USD 2.5 billion is spent waiting at check posts. A vehicle pays USD 7,500/annum in the form of various taxes, including excise duty on fuel.
As per UBS, if the distance covered goes up by 20% per day, Indian truck’s productivity can be improved by 12%, thus significantly reducing logistics costs and costs of a product.
Goods and Services Tax
GST was implemented on 1st July 2017 and is a destination-based & value-added comprehensive indirect tax now levied on goods and services (except for a list of exempted goods and services) on manufacture, sale and consumption at each stage of the life cycle. It subsumes all central and state indirect taxes and levies.
How has GST Helped in Cutting Prices?
It was estimated that a 2% cost reduction could increase a company’s profits by more than 20%. This benefit has undoubtedly been passed on to consumers in the competitive market through reduced prices of goods and services on GST implementation.
Impact of GST on the Logistics Industry
Logistics has up-beaten the implementation of GST as this regime has had many tangible benefits in store for this industry. Manufacturing businesses will account for 25% of GDP by the year 2025, and GDP growth is also said to boost up in the near term as a result of various economic reform measures by the government. We can see the vast potential waiting ahead and GST has been a proven milestone for it.
The touch of technology to the logistics industry will add a cherry on the cake, with increased efficiency and productivity. SuperProcure is one such platform that has been very active in this field and large conglomerates have been implementing it for efficient logistics management.