GST impact on logistics: Advantages to logistics industry in India

After being in the discussion for several years, GST saw light of the day in July 2017. Overall GST implementation was a humongous task as it involved multiple stakeholders. However, the GST impact was unique to the logistics industry. It not only simplified taxes but also changed the way industry worked. It eliminated a lot of efficiencies bringing in modernisation. This article takes a closer look at how GST has impacted the logistics industry positively and negatively.

Also read: How to use GST calculator

Positive GST impact on the logistics industry

GST has positively impacted the logistics industry. Here are some of the benefits of GST on the logistics industry.

Simplified taxes

Earlier logistics companies had to follow a complex taxation system. Each state had a separate tax system which made inter-state transport difficult. The tax had to be paid at each entry point of the state. Therefore, cumbersome in nature. However, the GST regime simplified the complex process through the implementation of a single, unified tax structure. Moreover, it reduced paperwork and compliance work.

Reduction in logistics cost

One of the impacts of GST on the logistics industry is cost reduction. With the introduction of a unified tax, the need to pay multiple state taxes in case of inter-state transport is eliminated. This has significantly reduced logistics costs. Moreover, with the GST system, businesses can claim input tax credits for taxes paid. This has helped companies to save costs.

Reduction in transportation time

Earlier check-posts at each state entry point and payment of octroi duties, etc., resulted in to increase in transportation time. This is especially true in cases when the goods are transported through multiple states. On the other hand, once the GST is paid, the goods are transported easily. This has helped the growth of the e-commerce industry too.

Logistics hubs

The implementation of the new tax regime enabled businesses to adopt the hub-and-spoke model of distribution. The use of logistics hubs, centralised warehouses, logistics centres, structured distribution, fulfillment centres, etc. led to the optimisation of inventory management a supply chain management. This is also one of the reasons for rise in the e-commerce. Moreover, the government of India further aims to establish multi-modal logistics parks based on a hub-and-spoke model, enabling further reduction in logistics costs.

Warehousing

Elimination of octroi and entry taxes at each state, have enabled companies to establish warehouses at strategic locations. As per the projected demand, businesses can now manage inventory and stock at strategic locations.

Route optimisation

Thanks to a unified, tax collection system there are lesser state entry points and multiple state taxes. Transporters are now able to optimise routes efficiently, where GST state code enabled GSTINs are used to levy taxes. Due to route optimisation, transportation delays are avoided. This further streamlines inventory management, production and the entire supply chain.

Improved efficiency

GST introduction revolutionised the supply chain operation in many ways. GST and e-way bill systems made tracking the movement of goods easier while reducing transit times and ensuring compliance. This helped companies eliminate logistical issues and improve the efficiency of the entire supply chain.

Also read: Finance Bill vs Money Bill in India – Understand taxation related Bills

Challenge of implementation of GST in the logistics industry

The GST simplified the operation of the logistics industry. It came with its set of challenges. Here are some of some of the disadvantages of the GST implementation are:

Initial challenges

The GST regime was implemented in the middle of the financial year. Therefore, businesses faced multiple difficulties in paying taxes and accounting. Additionally, the transition period was difficult for businesses to adopt the new tax regime. For example, online payments of taxes, generating GST-compliant bills, adopting new software solutions, and hassled businesses, especially MSMEs. Moreover, businesses also incurred short-term revenue loss during the transition period.

Overall, the initial few months of GST implementation were difficult for businesses. While it smoothened the transport process, adopting a new tax regime was difficult, especially for small businesses.

Increased initial cost

This is one of the major challenges of GST implementation. The new tax regime requires businesses to invest in software products. While investing in GST compliance solutions, accounting or ERP software helps businesses to get real-time updates with regard to GST and its portal. However, it involves a cost that MSMEs need to bear.

Alternatively, MSMEs also need to get professional help from GST consultant, which adds to their cost.

Technology adoption

As mentioned before, GST is filed online every month. In case you are starting a new transportation or logistics business, it becomes necessary to purchase the right solution to be GST-compliant.

Penalties

Non-compliance to GST every month attracts penalties. While businesses have settled in the GST tax regime to a large extent, businesses may miss out on a payment on a certain transaction. This attracts penalties and businesses incur additional costs.

Reverse logistics

Reverse logistics is when goods are returned to the producer for any reason such as damage, repair, replacement, and so on. Reverse logistics already incur the cost of return management and transport. Additionally, it also attracts GST on transportation services under the new tax regime. Businesses need to incur extra costs in case of reverse logistics. Therefore, it has become important for businesses to ship the right products to avoid the cost of reverse logistics and GST.

Concluding note

Generally speaking, GST has a positive impact on the logistics industry with a simplified tax regime. It enables to elimination of efficiencies and delays while allowing modernisation and technology adoption. After initial hiccups in accounting and technology adoption, now things are settled and streamlined. PM Gati Shakti Yojana will further enable businesses to reduce logistics costs and eliminate inefficiencies.