Let’s start by understanding what the term ‘GST’ actually means. Goods and Services Tax is the chargeable fee imposed on any sort of goods and services provided. The rates of GST differ from country to country and also from item to item. Hence, it is a destination based tax. It is a comprehensive tax as it covers all of the indirect taxes, excluding a few. GST’s rates are categorised into five different tax slabs, they are- 0%, 5%, 12%, 18% and 28%. The main reason as to why GST was introduced in India was because of the tax burden that would fall on the companies and the customers. This would take up a lot of money from everyone’s pocket, with them having nothing left if constantly paid.
GST was introduced on July 1, 2017 and replaced all the many flowing taxes implemented by the central and state governments. Post the launch, the GST rates have been modified and revised. The most recent decision that was made and that stuck by was on December 22, 2018. The federal and state ministers concluded the GST rates to be 28 on goods and 53 on services.
GST adds a positive impact in every aspect as indirect taxes are grouped together. As everything comes under one roof, less time is consumed for the customers, and for the tax chargers, it is very easy to look into the customer’s data and analyse whether all the payments have been accomplished or not. Along with this, there occurs a reduction in the manufacturing cost in the manufacturing sector.
Prior to the introduction of GST, the tax rates on goods varied from state to state, but once GST came into the picture, the tax rates were unilateral throughout the country. The rates of GST on the transportation of goods through trucks are subjected to be 5% or 12%
Speaking about the benefits of GST, it has brought upon a positive impact on the trucking industry. The taxes have been simplified. The logistics cost was reduced by 20% from the previous tax structure. Previously, the company’s warehouse cost was too extreme, but later it decreased to a reasonable price. The efficiency is increased when taxes are grouped into one particular tax. Various checkpoints, entry permits, endless paperwork and many more things are eliminated. This way more of travelling can be done, less time is consumed and hence the process becomes very smooth. Last but not the least, the payment. As the technology has advanced throughout the years, the way that it is being implemented is highly impressive. There’s a lack of confusion and an increment in uniformity.
One of the major impacts of the tax reform has been incorporating seamless and faster trucking all over the country, as state border check posts were removed from 20 states. This reduced the travel time by 20-25%. According to the Ministry of Road Transport and Highway, ever since GST has been implemented, long-haul trucks are now able to cover longer distances.
Initially, trucks could only cover a distance of up to 230-250 km per day, but now a distance of 300km is being covered on a daily basis. A survey by a domestic market research found that the truck productivity has increased dramatically due to the implementation of this scheme.
GST is also being quite helpful to drive changes in the logistics industry, which is bringing demand for large 25T HCVs (heavy commercial vehicles). The expectation of the tonnage growth is 10% over the next couple of years, as compared to 3-4% growth foreseen for a weight below 25T. After the implementation of GST, companies are now more attracted to larger warehouses with locations driven by logistical efficiencies rather than tax concerns.
This also brings in encouragement in investing more in the warehousing business. Pre-GST, the tax rate for most goods was 26.5%, post-GST, the tax rate for the goods was in the 18% tax range. GST is serving to bring down the total expenditure, or the logistics cost to 10-12% by implementing inter-state flow of goods and increasing the demand for logistics services.
GST also plays its role when it comes to multimodal transport. Multimodal transport is when two or more methods of transport are being used in order to deliver the goods. For example, road and air. The goods have been picked up from the warehouse by a truck and then taken to the airplane to take them to the next destination. Once landed, a truck is used to transport these goods to their respective destinations.
Now, how does GST play a role here? The GST rates in the present scenario varies throughout the country when it comes to multimodal transportation. The journey from the initial pickup to the final drop would be different in every case. Multimodal transports cost a GST rate of 12% inclusive of full ITC.
Transportation is basically an act that brings a connection between the business’ supply chain partners as well as customers and is a major influence on the satisfaction of the customers with the company. When it comes to the impact of GST on the transportation services, transportation of goods by road will not be chargeable unless the service provider issues consignment note.
The Ministry of Road Transport and Highway says, “A typical truck spent 20% of its runtime at interstate check posts. With inter-state check posts removed, travel time of long-haul trucks and other cargo vehicles cut by at least one-fifth”. For example, before, trucks used to take 50-60 hours in reaching Kolkata from Chennai and now the travel time has reduced by 20%. Prior to the existence of GST, the complex tax structure and the paperwork was a burden on the transport industry as they were asked to spend a lot of their resources on just tax compliance.
The implementation of GST in the transport sector has been positive, and with time, there will be more improvement. As the rule and regulations increase in this industry, India has a chance to compete globally by decreasing it’s logistics cost.
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