GST and Logistic Industry – Likely scenario

Presently the transporters transporting goods and engaged in logistics business suffer from a very complex and tax centric approach. GST will have impact on this industry – perhaps more than other service providers.

2. The industry at present keeps in mind the provisions of CST Act and State VAT laws to optimize the tax cost even at the cost of operating efficiency. GST will change. Now stocks transfers are no longer governed by Section 6A of the CST Act and no F forms will help. Stock transfers are now “ Supply” and subject to normal GST; though valuation rules might provide some relief. Now the industry will decide the logistics issue – warehouses, dealers, distributors, agents, commission agents etc- purely on operational efficiency and cost benefit analysis. And not simply on F forms basis.

Logistic industry thus has to redesign their business models that might require closing of some existing locations or creating new locations. Especially in manufacturing States the impact needs to be profound and must be studied in detail. The entire logistics model, MY TAKE view is, will require to be as close as possible to manufacturing locations.

3. Warehouses number may decrease over all but their sizes may go up. Transportation hubs in each State will require new developments based on GST impact analysis by the local industry having pan India or intra-state operations.

4. Service Tax law at present allows abatements. GST Regime, MY TAKE view is, may not provide such abatements at all. Thus such service providers will have to pay GST on transaction value requiring huge liquidity and if their credit cycles are longer, inflow of cash will be more and more. Perhaps due to finance cost, margins in this industry may be decreasing over the years post GST Regime.

5. With the rollout of GST, the taxable event under the GST regime will be the mere ‘supply’ of goods and services, as compared to the current taxable event being either manufacture, sale of goods or provision of service. In GST regime, MY TAKE view is that that every supply of goods from Point A to Point B could be taxed under GST as it can be construed as supply.

Unless GST Final Bill excludes logistics industry from the definition of “Supply of Goods”, the industry may run into troubled water post GST Regime.

6. Petroleum has been kept out of GST as exempt until a date announced by GST Council when GST will be applicable. Hence, ITC on petroleum products may pose problems.

GST rollout will also enable business organizations to establish large warehouses in key strategic locations and few regional distribution hubs (hub & spoke model). Decrease in tax burden and buffer stock will reduce the need for widespread warehouses at several locations. With GST roll out, these smaller warehouses will amalgamate to form large efficient warehouses with state-of-the-art infrastructure, planning and well-trained manpower which are not feasible in scattered warehouses.