Logistics industry is considered the backbone of Indian economy. The Indian Logistics Industry is home to 45 Million people. However, as per the World Bank’s Logistics Performance Index 2010, India is placed at 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 20% rate vis-à-vis the average world logistics sector growth of 10% which will further add to spend on logistics cost. Lets find out the Impact of GST on Logistics Industry.
Statistics show transportation costs in India form a third of the cost of the total logistics spend across different sectors. It is at a constant rise due to inefficiencies at various levels in the entire system which leads to making logistics a high-cost and low-margin business. It is dominated by unorganized players while organized sectors are responsible for only 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 Interstate Tax Regime?
According to data, Indian trucks drivers move freight approximately 280 km/day whereas the world average is 400 km/day and US does it 700 km/day. Prevalent tax law is one of the reasons behind this. Drivers spend 60% of the time off roads negotiating check posts and toll plazas. There are approx. 650 check posts & 11 types of taxes on the road transport in country. Annually, Fuel worth USD 2.5 billion is spent on waiting at check posts. A vehicle pays USD 7,500/annum in the form of various taxes, which includes excise duty on fuel as well.
As per UBS, if the distance covered goes up by 20% per day, Indian truck’s productivity may be improved by 12% and thus significant reduction in logistics cost and cost of a product.
Goods and Services Tax
GST being implemented on 1st July 2017 is a destination based & value added comprehensive indirect tax which is 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% reduction in costs can increase a company’s profits by more than 20%. This benefit has surely been passed on to consumers in the competitive market in form of reduced prices of goods and services on GST implementation.
Impact of GST on Logistics Industry
Logistics has up beaten the implementation of GST as this regime has had many tangible benefits in store for this industry.
Manufacturing is slated to account for 25% of GDP by the year 2025 and GDP growth is also said to boost up in near term as a result of various economic reform measures being taken by the government. We can see the huge potential waiting ahead. And, GST has been a proven milestone for it. The touch of technology to logistics industry will add as a cherry on the cake, with increased efficiency and productivity. SuperProcure is one such platform which has been very active in this field and has been successfully implemented at large conglomerates.