GST impact on Logistics

Goods and services tax (GST), could affect profitability of the logistics sector in the short run, but operational efficiency is bound to improve in the long run.

The logistics sector broadly comprises the road transport sector, the storage and warehousing sector and finally third-party logistics (3PL).

For manufacturers, GST has now replaced the multiple state VATs and the need to have a hub across all states will cease to exist.

Allow firms to redesign supply chains and centralize hub operations to take advantage of scale economies. It will also allow firms to employ efficient practices such as bulk-breaking and cross-docking from a central location

For transport services, the “reverse charge mechanism” can be levied as before but the taxpayer will not be able to claim input tax credit, as the main input cost is fuel which is outside the purview of GST

Under GST, the tax on warehouse, storage and other labour services has increased from 15% to 18%. So a third-party logistics provider will now have more incentive.

Ease of entry across states will reduce transportation delays with measures such as the e-way bill

GST will bring a lot of alignment of value-added services in the logistics sector. This will make way for cutting-edge investments and mergers and can see a phenomenal increase in asset utilization and increase in operational efficiency

There will be new investment opportunities for technology-enabled mini warehouses along the highways and technology enabled start-ups.”

This will result in uncertainties and affect the profitability of the sector in the short run. In the long run, operational efficiency is bound to improve

Discuss in detail the impact of GST on Logistic sector?