A Project Report on

GST Effect On Logistics Industry

Submitted By
Swapnesh jain
(Y141805395)
BBA 5th semester
Under the Guidance of:
Mr. Lokesh Uke
(Assistant Professor)

Department of Business Management

Dr. Hari Singh Gour Central University
Sagar (MP), India
Year 2016

GST CONCEPT & STATUS OCTOBER, 2016

Introduction
The introduction of Goods and Services Tax (GST) would be a very significant step in the field
of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into
a single tax, it would mitigate cascading or double taxation in a major way and pave the way for
a common national market. From the consumer point of view, the biggest advantage would be in
terms of a reduction in the overall tax burden on goods, which is currently estimated to be around
25%-30%. Introduction of GST would also make Indian products competitive in the domestic
and international markets. Studies show that this would have a boosting impact on economic
growth. Last but not the least, this tax, because of its transparent and self policing character,
would be easier to administer.

The Constitution Amendment Bill for Goods and Services Tax (GST) has been approved by The
President of India post its passage in the Parliament (Rajya Sabha on 3 August 2016 and Lok
Sabha on 8 August 2016) and ratification by more than 50 percent of state legislatures. The
Government of India is committed to replace all the indirect taxes levied on goods and services
by the Centre and States and implement GST by April 2017.
With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and
services will be taxable, with minimum exemptions.
GST will be a game changing reform for the Indian economy by creating a common Indian
market and reducing the cascading effect of tax on the cost of goods and services. It will impact
the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and
reporting, leading to a complete overhaul of the current indirect tax system.

GST will have a far-reaching impact on almost all the aspects of the business operations in the
country, for instance, pricing of products and services, supply chain optimization, IT, accounting,
and tax compliance systems.
GST has been envisaged as an efficient tax system, neutral in its application and distributionally
attractive. The advantages of GST are:

Wider tax base, necessary for lowering tax rates and eliminating classification disputes
Elimination of multiplicity of taxes and their cascading effects
Rationalization of tax structure and simplification of compliance procedures
Harmonization of center and state tax administrations, which would reduce duplication and
compliance costs
Automation of compliance procedures to reduce errors and increase efficiency
Destination principle
The GST structure would follow the destination principle. Accordingly, imports would be subject
to GST, while exports would be zero-rated. In the case of inter-state transactions within India,
State tax would apply in the state of destination as opposed to that of origin.

GST would replace most indirect taxes currently in place such as:

Central Taxes
Central Excise Duty [including additional excise duties, excise duty under the Medicinal and
Toilet Preparations (Excise Duties) Act, 1955]
Service tax
Additional Customs Duty (CVD)

Special Additional Duty of Customs (SAD)

Central Sales Tax ( levied by the Centre and collected by the States)
Central surcharges and cesses ( relating to supply of goods and services)

State Taxes
Value-added tax
Octroi and Entry tax
Purchase tax
Luxury tax
Taxes on lottery, betting and gambling
State cesses and surcharges
Entertainment tax (other than the tax levied by the local bodies)
Central Sales tax ( levied by the Centre and collected by states)

Impact of GST in Indian Economy

Reduce tax burden on producers and foster growth through more production. This double
taxation prevents manufacturers from producing to their optimum capacity and retards growth.
GST would take care of this problem by providing tax credit to the manufacturer.
Various tax barriers such as check posts and toll plazas lead to a lot of wastage for perishable
items being transported, a loss that translated into major costs through higher need of buffer
stocks and warehousing costs as well. A single taxation system could eliminate this roadblock for
them.
A single taxation on producers would also translate into a lower final selling price for the
consumer.
Also, there will be more transparency in the system as the customers would know exactly how
much taxes they are being charged and on what base.
GST would add to government revenues by widening the tax base.
GST provides credits for the taxes paid by producers earlier in the goods/services chain. This
would encourage these producers to buy raw material from different registered dealers and would
bring in more and more vendors and suppliers under the purview of taxation.
GST also removes the custom duties applicable on exports. Our competitiveness in foreign
markets would increase on account of lower cost of transaction.

The proposed GST regime, which will subsume most central and state-level taxes, is expected to
have a single unified list of concessions/exemptions as against the current mammoth exemptions
and concessions available across goods and services
The introduction of Goods and Services Tax would be a very noteworthy step in the field of
indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a
single tax, it would alleviate cascading or double taxation in a major way and pave the way for a
common national market. From the consumer point of view, the biggest advantage would be in
terms of reduction in the overall tax burden on goods and services. Introduction of GST would
also make Indian products competitive in the domestic and international markets. Last but not
the least, this tax, because of its transparent character, would be easier to administer. However,
once implemented, the system holds great promise in terms of sustaining growth for the Indian
economy.

Effect Of GST On Logistics Industry

The logistics industry in India was estimated to be worth USD 130 billion in 2013 and has been
growing rapidly.[1] While the logistics sector could be among the primary bottlenecks in driving
economic growth, it will also act as a catalyst to realising Indias manufacturing dream over the
next decade.

Logistics companies in India have evolved over the years from being mere first-party logistics
providers (1PL) to second-party logistics providers (2PL) to integrated fourth-party logistics
providers (4PL) by providing a complete package of logistics services, including transportation,
warehousing, pool distribution, management consulting, logistics optimisation, etc. and
complementing them with advanced supply chain facilities. Alongside, the government has made
considerable inroads into ensuring a favourable business climate. In one such initiative, the
government has proposed to implement the Goods and Services Tax (GST), which promises to
integrate Indias multi-layered indirect tax system into a single unified one, unshackling India
from its bureaucratic web and improving the ease of doing business. The changes in the proposed
indirect tax system could reduce transportation cycle times, enhance supply chain decisions, lead
to consolidation of warehouses, etc. which could help the logistics industry reach its potential in
terms of service and growth.

In this article, we look at the various aspects of the logistics industry that may be affected by
GST and how industry dynamics are likely to change once GST is implemented.

Warehouse Engineering
Warehouses and logistics are an integral part of an organisations strategic business plan and
operations. A multiple warehouse strategy works well for inter-state sales as organisations in

India usually operate warehouses in multiple states (one in each state). The organisation then
declares the transfer of goods as a stock transfer to negate the Central Sales Tax (CST) incidence
on inter-state sales as a sale to ones own warehouse, under the aegis of declaration form F, is not
a taxable event under the Central Sales Tax Act, 1956. Such stock transfers are completed
through intra-state sales from the state warehouse to the customer. However, once GST is
implemented, India will become a common market without any differentiation between interstate and intra-state sales, thus ensuring a cumulative tax incidence with both the transactions
being taxed equally (barring the temporary additional 1% tax on inter-state sales). Thus, the
multiple warehouse strategy will be ineffective in reducing the inter-state tax incidence.

Thus, this tax reform could initiate a shift from multiple small warehouses to a large central
warehouse in order to mitigate the additional administration cost of operating multiple
warehouses. Over time, logistics companies may have to adapt to this evolved warehousing
pattern followed by manufacturers/traders and re-engineer their services to be concentrated
around major metropolises/areas such as Mumbai, National Capital Region (NCR), Kolkata and
Chennai, where the central warehouses of the majority of companies may be situated. This will
also shift the pattern of supply assignments, supplier channels and lead to a change in transport
routes for logistics companies, accordingly.
The transportation and logistics sector is likely to experience far reaching consequences as a
result of the GST reform in India. It is likely to open up an entire gamut of opportunities to
rationalize and reengineer transportation and logistics networks in India. The GST bill is going to
give impetus to the development of logistics infrastructure.

As per the last figures in 2013, the logistics industry in the country is estimated to be worth
US$130 billion and is on the growth trajectory. Over a period of time the logistic companies
have evolved and are providing a complete package of transportation, warehousing, pool
distribution and logistics optimization etc. However, the inefficient tax system with the
complications of the interstate tax regime has resulted in inefficient and long supply chains with

warehouses in every state. GST is likely to result in the overhauling and compression of the
entire logistics set up.

Under the GST amendment, tax will be levied on stock transfers and full credit will be available
on interstate transactions. Thus the warehousing locations will no longer be dependent on the tax
considerations and will be decided on the company strategy and logistic requirements. The
preferred location for the warehouses would be in close proximity to the manufacturing location
or consumption markets. This will lead to shutting down of midway warehouses and new ones
with larger sizes will come up in the preferred locations.

Currently abatements are available to transport service providers under the service tax laws.
However, this is likely to be discontinued under GST.
The exclusion of petroleum products from the GST net will have severe implications as the
motor spirits constitute more than 50% chunk of the business.
The GST will be applicable on the transportation charges in full for the delivery of the goods.
The exclusion of petroleum products will break the tax credit chain resulting in additional costs.
Currently 60% of the logistics time is spent for tax compliance on the interstate check points for
scrutiny of records and tracking of the interstate sales tax. With the advent of the GST a
mechanism for centralized registrations and compliances would be required. Not only it will help
the service providers to claim and utilize credits but also will track the tax compliance. In the
absence of this centralized service the border checks will continue and we will fail to gain the
anticipated reduction in logistic time.

The GST implementation will lead to the emergence of organized service providers since taxes
will not be added costs for business. In the current scenario the logistics sector is a highly
fragmented industry with a very few large organized players. The unorganized sector would have

to shape up and join hands with the organized players for setting up economies of scale. This will
augur well for both the players.
The clarity is still to emerge on the GS Tax for the logistic services to and fro from the special
economic zones of India which are currently not under any state jurisdiction. There is also a need
for appropriate rules for tax credits/refunds for the logistics in case of export of goods which will
qualify under zero tax.

Conclusion
As the next level of logistics are evolving in India and the corresponding regulatory policies has
to be taken care well ahead of the GST introduction to have a positive and expected impact.
Further, on account of the delay in implementation of GST, it is critical to gauge the opportunity
loss for the various stakeholders. The following are the critical business implications post GST
implementation. The implications are segregated based on Process, People and Technology
Supply Chain Reengineering
Many service providers have to revamp their supply chains, realign their warehouses and
logistics networks. This gives tremendous opportunity to 3PL and 4PL logistics providers.
Transportation
Re organized manufacturing plants and warehouses would reduce the primary freight charges as
they are located close to each other irrespective of which state they are in. However, secondary
freight may increase because of the fewer warehouses.
Consolidation and Outsourcing
With the increase in the availability of organized and efficient players, there is a possibility of
consolidation. Also, this leads to the outsourcing of their logistics operations (3PL & 4PL) to
logistics service providers so that the companies can focus on their core competencies (products).
PEOPLE
Skill set upgradation and service levels
The need for optimally skilled and technically qualified workforce is likely to become a
challenge. Hence, to cater to this need, supply of skillful workforce should improve which in turn
improves the service level of the company in its operations and meet the customer demands.

Bibliography
GST

(2016 Nov. 6)

Retrieved

Nov 6 2016, from www. Saginfotect.in

http://blog.saginfotech.com/gst-impact-on-logistics-and-warehousing-sector

Money control

(2016 Nov. 7) Retrieved Nov 7 , 2016, from www. Moneycontrol.com

http://thefirm.moneycontrol.com/story-page
Economictimes

(2016 Nov. 8) Retrieved Nov 8 , 2016, from www. Economictimes.com

http://m.economictimes.com/topic/GST