GST will lower Logistics cost by 20 per cent

Goods Service Tax (GST) was implemented by France way before in April 1954. If we see GST implementation and percentage of GST rate of developed economies way before then the impact  shows effectiveness and efficiency over the years. The GST implemented countries has seen increment in tax revenue and overall economy uptick when introduced.

GST in India is going to be implemented from April 2016 with proposed revenue neutral rate of 27 per cent. The structure of GST comprises of State Level GST (SGST) and Central Level GST (CGST). SGST will absorb VAT/sales tax, Entertainment Tax, Luxury Tax, Tax on Lottery, State Cess and Surcharge. CGST will absorb Central Excise Duty, Additional Excise Duty, Service Tax, Additional Custom Duty, surcharge, Education cess. Thus, integrated GST will total both of these - SGST and CGST.

The GST will have an impact on industries viz FMCG, Consumer durables, Pharmaceutical, Automobiles etc. Industry wise current logistics cost 8 to 9 per cent for FMCG, 7-8 per cent for Consumer durables, 5.5-6.5 per cent for Pharma, 5 to 6 per cent for Automobiles in terms of percentage of sales. There will be savings in logistics costs to the tune of 1.5 to 2.0 per cent as a percentage of sales on and average for all these sectors. This may amount to reduction upto 20 per cent in the logistics bill. Most of the companies have set up warehouses to save Central Service Tax and to be closer to retailers for logistical reasons. After GST implementation, companies will consolidate their warehouses and minimize the numbers to around 25 to 30 per cent from existing warehouses in turn saving cost for setting it up and running repairs and maintenance.

Some of the benefits of GST include tax savings, savings from consolidation, lower transportation time due to dismantling of border check posts. Besides companies directly impacted from GST there are others that have to maintain warehouses for geographical penetration. There are around 650 odd check post across pan-India. Truck drivers in India spend 60 per cent of their time negotiating check posts and toll plazas. This leads to increase freight traffic and productivity loss. Thereafter, higher productivity would cut the need for buffer stocks, reduce the loss of perishable goods and cut down the need for many warehouses.

The GST formation will be the most admirable change since last decade. This will change the face of Indian economy. The tax revenue of the Government will increase about 0.2 per cent according to National Council of Applied Economic Research because of GST implementation. While GDP growth could go up by 0.9 to 1.7 per cent over the years.