Basically, logistics is a part of supply chain management. It deals with the efficient forward as well as the reverse flow of goods, services and relevant information from the point of origin to the point of consumption based on the needs of the customers. Impact of GST on the logistics industry article briefly explain what is the negative impact of GST?
In simple terms, logistics defines the commercial activity of transporting goods to the customers/ users. Some of the functions covered under logistics are transportation, warehousing, distribution, etc.
Due to the rapidly growing economy of India, the logistics industry under GST regime is also currently enjoying its booming stage. Notably, the rise of e-commerce in India is also having a major impact on the logistics industry leading to a huge demand for logistics services in India.
Importantly, a well-organized logistics system vis-à-vis supply chain duly ensures delivery of the right item/ commodity of the right quantity at right time to the right place in the right condition to the right customer.
As we know, the Goods and Services Tax (GST) being the biggest tax reform of India has positively and/ or negatively affected each and every sector of India. Likewise, the same has its own positive and negative effect on logistics sector too. Let us analyze the impact of GST on logistics sector in the present article.
5 Positive effect of GST on the logistics industry
Firstly, let’s have a look into the positive effect of the GST implementation and GST impact on the logistics industry. The same is highlighted hereunder
1. Minimization of transportation time
The most positive impact of GST on the logistics sector is the significant reduction of transportation time.
If we go through the pre-GST period, by and large, a truck used to spend around 20% of its run time at inter-state check posts. Post-GST compliance time at the inter-state check post is reduced. Resultantly, such reduced compliance at the inter-state check posts enables minimizing transportation time.
If we look into the broader perspective of the same, minimization of transportation time will lead to low delivery costs ultimately which may result into a reduction of the final price of the goods.
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2. Trouble-free supply of goods
Sub-summing various taxes like VAT, Octroi, CST etc. into one single tax i.e. Goods and Services Tax (GST) has ensured a smooth supply of goods. Further, post implementation of an e-way bills under GST has also enabled a trouble-free supply of goods.
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3. Reduction in paperwork
Due to a unified tax structure and complete digitization, there is a noteworthy reduction in paperwork. In the pre-GST tax regime, lot number of documents were required to be companied with the transport vehicle. However, post-GST, the said purpose can be solved by majorly one single document i.e. e-way bill.
4. Improvement in warehouse system
In the earlier tax regime, due to the specific tax structure, it created the requirement of setting up a separate warehouse in each operational state. However, with the implementation of GST, the said requirement is eliminated.
Post GST, there is no requirement of having warehouses in each state, the reason being there is no separate tax regime for different states. Accordingly, it enables easy and effective inventory management.
5. Decrease in corruption
With the unified taxation; decrease in inter-state check post compliances and reduction in a number of documents to be carried, the same has positively affected the corruption revolving around the logistics sector.
Accordingly, it can easily be summed up that the implementation of GST has resulted in a decrease in corruption in the logistics sector.
What is the negative impact of GST on the logistics sector ?
Similar to the two sides of a coin, apart from the positive effects, there are some negative effects too of the implementation of GST in the logistics sector.
One such negative effect is the constant increase in fuel prices post GST. We can say that fuel is the raw-material for the logistics sector. An increase in its price, post GST, has left the most negative effect on the sector. It is although to be noted here that fuel tax is outside the purview of GST. However, there is an indirect effect of GST on fuel cost.
Secondly, the logistics industry is still considered amongst the unorganized sector. Hence, with the time span, the logistics sector was habitual to the old tax regime. Post GST implementation, the logistics sector has to adopt the new law, new procedure and new documentation which is likely to increase its compliance cost to a greater extent.
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Impact of GST on the logistics industry : Positive and negative effects
Positive effects of GST on the logistics sector are -
- Reduction in transportation time;
- Trouble-free supply of goods;
- Reduction in paperwork;
- Done away with the requirement of separate warehouse in different operational states;
- Decrease in corruption; etc.
Negative effects of GST on the logistics sector are –
- Indirect constant increase in fuel cost;
- Increase in compliance cost; etc.