GST Impact on Logistics and Warehousing Sector

The Goods and Services Tax (GST) regime is now ready to give a boost to the growth of the warehousing and logistics industry in India. New warehousing hubs are set to establish better facilities and better transportation and logistics services across the nation. According to a real estate consultancy firm JLL India, the implementation of GST has played a key role in the development of e-commerce giants and they will be able to choose a wide range of services across the country. It will undoubtedly benefit the logistics corner and offer cost saving on the consumer end. The GST bill has been implemented from 1st July 2017 and the government will facilitate E-filing of GST through online portals for filing procedures. With the advent of goods and services tax, it is also the support of e-commerce industry to further take the industry more worthy. As the scenario has changed a lot, the online shopping demands a firm supply chain to cater the needs of the general public.

Although the free samples were considered without any levy while it is also not considered on the goods and service tax. But the consequence is that the input tax credit is barred to avail. The customer can send free samples to their prospective buyers but all the packaging and freight is subjected to the GST applicability.

As the transporting and warehousing are not as much in the highlight while talking about the business at large, but it is a certainly most important aspect of it. As the GST got implemented on 1st July 2017, it has speculated that the warehousing industry is all set to jump a great length in no time. Anuj Puri, Chairman and Country Head, JLL India stated that “Under the new tax structure, the focus would shift from saving tax by having smaller warehouses, to improving overall efficiency. The merger of smaller warehouses will lead to higher efficiency in supply chains and the former would become more productive and logical locations. Automation of these assets will be seen, which will give excellent cost benefits to the landlords/ operators. As the rents charged by organised warehouses will go down, the price advantage that unorganised warehouses presently enjoy will shrink.”

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In the recent study done, the World Bank, India has successfully jumped 19 positions in the Logistics Performance Index (LPI) just after the implementation of Goods and services tax. Now, the country stands at 35th rank, while it stood at the 54th position back in 2014. A lower investment opportunity in the warehousing sector also offers a better investment return and lead to the growth of the business. The warehouse industry in India is worth INR 560 billion and is growing at a rate of 10 percent every year. Many of the ambitious individuals are eying upon a better opportunity and growth in the logistics and warehousing sector. The logistics and warehousing are also capable of boosting the economy and will be increasing the share of GDP which is in current phase about 13 percent.

The growth in Indian warehouse industry is driven by the domestic consumption, increase in international trade, increase in private and foreign investments in infrastructure. Apart from storage facilities, the warehousing firms in India now offer an array of value-added services such as packaging, cargo, reverse logistics, bar coding, etc. in order to provide best services to the consumers. The different warehousing segment that plays different roles in the industry are classified as follows:

Industry/Retail Warehousing– MJ Logistics, DHL, Safexpress, Allcargo, etc

Liquid Storage– Indian Oil Tanking, IMC Ltd, Vopak India, Sealord, etc

Agri Warehousing– National Bulk Handling Corporation Ltd., Ruchi Infrastructure Ltd, Adani Agri Logistics, etc

Cold Stores– Snowman, Cold Star, ColdEx, Fresh and Healthy Enterprise, etc

With GST into consideration, the new taxation system will be making, India a single market with the destination-based tax system. It will put a strong impact on the manufacturing chain, supply chain, and retail chain.The logistics and warehousing were already on the fast track but the upcoming of GST took longer time than speculated. This time the warehousing and logistics will be capturing a model with a larger hub in the centre with spoke chain across the nation. A strategically placed warehouse not only improves the consumer services but also facilitates proper supply chain management. The objective of GST is to make the supply chain leaner and flexible, while the major impact will be seen in the warehouse industry.As stated by KPMG India Pvt. Ltd., Because of the current complicated tax structure, the logistics decision and choice of setting up of inventory and distribution.

Also Read: GST Impact on Automobile Industry in India

As stated by KPMG India Pvt. Ltd., Because of the current complicated tax structure, the logistics decision and choice of setting up of inventory and distribution centres are taken on the basis of applicable CST and VAT rates, rather than operational efficiency. With GST implemented, there will no longer be the necessity of having a warehouse in every state, where a firm does business. The same decisions will be free from tax consideration perspective and will purely base on operational and logistics efficiency. The organizations may now design their supply chain management in an efficient way with cross docking and bulk breaking practices.

Nagpur is now considered as a hub for the warehousing business which is tagged as the Zero mile city of India. While the tax on warehousing and other labor oriented services are now decided at the 18 percent from previously stated 15 percent. This increase has given the benefit to the third party logistics service providers who can now shift towards the services provisions. This will also provide input tax credit to be claimed by the service providers.

V. Ramaswamy, chief executive officer of Cargowings logistics mentioned some of the important points for the GST impact on the logistics industry, “GST will bring a lot of alignment of value-added services in the logistics sector. This will make way for cutting-edge investments and mergers and one will see a phenomenal increase in asset utilization and increase operational efficiency. There will be new investment opportunities for technology-enabled mini warehouses along the highways and the sector will witness a fresh wave of technology enabled start-ups.”
There is an overall benefit for the logistics industry after the GST, but there are so many problems which may get stuck into the course. Still, it has much more capabilities to reduce the transporting cost by 20 percent. Which may further give access to far reaching technologies and global footprints.