GST- A Shot in the Arm For Express Logistics Industry
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Beyond fulfilling, the Prime Minister’s desire for “One Nation, One Tax, One Market”, GST has truly set course for transformation of the logistics industry in general, and express logistics in particular.
Logistics industry is witnessing an increasing customer preference towards more process driven and tech enabled organized players owing to their ability to offer on-time delivery, transparency in logistics operations, load safety and security, easy regulatory compliance and overall ease of doing business.
GST has opened many new opportunities for the express logistics industry-
Increase in size of total addressable market – We live in an on-demand world and the ability to serve customer needs, whatever, when and wherever, is what makes modern-day businesses tick. Express logistics, is the key last mile enabler, in this process. In the b2b segment, E-Commerce, Omni-Channel Retail and E-Retail are contributing to exponential growth of total addressable market for express logistics in India.
Rationalization of Capital Investments – Pre-GST, express logistics players annually spent a major share of their capital in building and maintaining warehouses, in each state, to avoid payment of state value added tax (VAT) applied and take advantage of demand seasonality across the country. With GST bringing about a uniform tax code, LSPs no longer need warehouses in so many locations. Fewer but much larger warehouses, designed to serve a variety of logistic needs of customer, can just as well support easy freight movement between manufacturing plants, LSP hubs, distributors and retailers, freeing up scarce capital for much-needed investments in technology, staff, customer service and marketing.
Ability to Attract Investments – Logistics is a capital-intensive business and players need fresh infusion of funds to help drive growth and manage operating costs. Beyond simplifying tax structure, GST has helped improve Return On Capital (ROC) in the industry and ever since there has been greater interest from P/E funds owing to immense growth potential in this core infrastructure industry.
Compliance & Ease of Doing Business - The biggest advantage of GST has been reduction in paper work required by state taxes and excise taxes. Transporting from one state to another felt like moving from one country to another. Earlier a transporter had to pay upto eight different taxes making the entire process cumbersome and tedious. Introduction of E-Way bill has streamlined logistics operations tremendously and helped improve ease of doing business for LSPs
Easier tax credits - GST provides for an input tax credit mechanism. Since every link in the value chain, including dealers and distributors, will need evidence of compliance by its preceding link to claim the required set-offs, it is likely to broaden the tax base by increasing voluntary compliance. This has also improved transparency and accuracy in forecasting of delivery time.
Overall, GST has been good for the express logistics industry. True, it did increase complexities due to frequent filings, irregularities in input tax credits from upstream parties. In the long run however, GST is going to provide a shot in the arm for express logistics industry by boosting operational efficiencies and ability to deliver as per ever evolving customer needs, anywhere and every time.