The Goods and Service Tax (GST) is undoubtedly India’s most important economic reform since the Liberalisation, Privatisation, and Globalisation (LPG) reforms. While many industries have benefited from GST implementation, one of the biggest beneficiaries is the logistics industry. Its benefits come mainly from the removal of inter-state check posts, ensuring smooth movement of transportation vehicles. The elimination of state taxes has also minimised bottlenecks.
Goods Transport Agency (GTA) was brought under Goods and Services Tax (GST) under notification 12/2017-Central Tax (Rate) dated 28.06.2017. As per the notification for GTA under GST, transportation of goods by road is free from GST except for the services offered by a goods transport agency and a courier agency. In simple words, transportation of goods by road, unless carried out by a registered transportation agency, will not come under the purview of GTA under GST.
A transport business must issue a consignment note to be recognised as a GTA. Businesses or agencies that do not issue a consignment note will not fall under the guidelines of a GTA.
Making India a Unified Market
The implementation of GST has made India a unified market. The manufacturing industry has become more competitive as the high costs of warehousing and logistics have been curtailed. GST has helped rationalise and restructure transportation logistics networks. During the pre-GST times, the industry was entangled in a string of taxes. By helping unify the taxation system at a national level, having GTA under GST has helped the transportation sector. Cross-state transport has become smoother, efficient, and quicker. Incredibly streamlined paperwork too has helped bring down logistical costs.
Life Before GST for the Transportation Industry
Before GST became a reality, transport services had to pay tax on goods at different rates, at every state through which they moved. Multiple taxes were imposed on the same freight as it moved across the country to its destination. This resulted in long delays at every state’s border checkpoints. Every state had its own set of rules to examine freight and apply relevant taxes. Before GTA came under GST, trucks spent around five to seven hours at every inter-state checkpoint. This is one of the reasons why while globally truck drivers average 400 km per day, Indian truck drivers clocked a mere average of 250-280 km per day.
The implementation of GST is a game-changer for the transportation sector. It’s even more crucial considering the fact that 65% of India’s freight movement happens by road. A World Bank survey states that reducing delays caused by roadblocks and tolls by half can help cut freight times by around 30% and logistics costs by about 40%. This, in turn, can boost the competitiveness of India’s manufacturing businesses by around 4%. That is what having GTA under GST aims to achieve.
A Convenient, Single Tax at Point of Sale
The GTA under GST system has replaced several state and central taxes and tariffs and converted them into a single tax at the point of sale. India’s earlier complicated tax structure resulted in logistics decisions being implemented based on the central sales tax and states’ value-added tax (VAT) rates. Operational efficiency was not a guiding factor in these decisions.
Tax optimization and administration were accorded a higher priority over operational and logistics efficiency. The implementation of GTA under GST has helped overhaul the previous logistics set-up in which longer supply chains were a norm and one of the key reasons for the inefficient handling of operations.
The implementation of GTA under GST has resulted in the industry becoming more organised. Logistics industry players are happy as taxes will no longer be added to the costs for the businesses. Having GTA under GST has helped unleash innumerable opportunities for transport companies in the organised sector. It is a win-win situation for all the players.
How it is Impacting the Logistics Industry
Logistics industry players are delighted with this impactful new tax reform. They are sure that as it rolls out further and the minor chinks are ironed out, having GTA under GST will drastically bring down the logistics cost across the country. This will also make India’s manufacturing sector more competitive than ever before.
Experts believe that proper implementation of GTA under GST can immensely benefit the transportation industry and positively impact the logistics industry through reduced costs and increased efficiency. It would have an immense impact within the country and on exports and will lead to the emergence of organised providers, who will not view taxes as an additional burden on their business.
The logistics business in India is currently a mix of some well-organised enterprises and many small, unorganised entities. With GTA under GST, different types of businesses in the transport sector will come together.
Until recently, the logistics sector was highly fragmented, with very few large and organised players. With GTA under GST, the unorganised sector has joined hands with the organised and set up economies of scale. This is already happening on a big scale, decreasing transportation cycle times and better supply chain decisions. It is helping the transport industry come out of its bleak and uncertain times and enjoy sustained growth and profits.
GST and the Evolvement of the Transportation Sector
Having GTA under GST has helped the transportation industry evolve in more ways than one. The long-haul trucks are becoming bigger, and check posts and inter-state borders have become history. The industry is already enjoying the benefits of the new tax rules as it has ushered in greater efficiency and faster delivery of goods. Transporters can schedule more trips than before, leading to more productivity, improved sales and turnover, and bigger profits.
The logistics industry is undergoing a tremendous change ever since GTA came under GST. This is undoubtedly the big-bang tax reform that the transportation industry had been waiting for, for a long time. Reduced interstate compliance and minimal paperwork have resulted in faster turnaround time for trucks, thus adding directly to the bottom line of the transporter. GST is also helping the industry become more specialised. A proper management system is being set up. It will help transporters connect the manufacturers with the hubs for seamless movement of goods.
According to the government, another category known as subsidiary transporters will move from the hubs to the distribution centres. The last-mile transporters will ensure successful customer delivery. This well-planned and organised structure will lead to more competitiveness and efficient sourcing.
There is little doubt that GST has benefitted the transport business in many ways in the last year. They had to pay 17 types of indirect taxes and 23 types of cess before the introduction of GTA under GST. Now, all the indirect taxes and cesses have been included in one uniform tax system. This has made life easy for the transportation industry owners and administrators as they have to handle a significantly lesser number of documents and file fewer papers than before.
Improving Per Day Mileage for Better Output and Profits
One of the key benefits of bringing GTA under GST has been minimising the idling time of trucks. The freight cost on every trip was higher than international rates because trucks spent nearly 20% of their run time idling at checkpoints at interstate borders. Surveys have revealed that a truck in India runs an annual distance of 60,000 km. This is way behind the 200,000 km that trucks log in annually in Western countries. According to a government report, the removal of interstate checkpoints has reduced travel time for long-haul trucks by at least one-fifth.
Tax Compliance Hassles, No More
Pre-GST, the transport industry had to spend a large amount of their human and financial resources on tax compliance-related work and deposit of sales tax. The addition of GTA under GST has resulted in the removal of sales tax collection at interstate barriers. Now, they just have to pay one tax. This has resulted in improved uptime for trucks and better turnaround. It has also resulted in an optimised warehouse structure.
Pre-GST, transporters had to deal with a complex and confusing tax maze. They had to shell out a large part of their earnings on statutory centre and state tax rates. It worked out to around 26%. After placing GTA under GST, the rate of taxes on all goods are expected to be in the range of 18%. This has resulted in significant tax savings for transporters across the industry - regardless of their size and scale of operations.
Pre-GST, transporters had to deal with high logistics costs. This amounted to around 14% of the total value of goods. In other major countries, this value amounted to just around 6-8%. WithGTA under GST, the ride has definitely gotten better. Logistics costs have been reduced to just around 10-12% of the value of goods, resulting in significant savings for transport companies.
Border Checkpost Mess Averted
A detailed analysis of the top 15 states of the country in terms of freight movement revealed that the time spent at interstate borders varied vastly. This happened because of the lack of uniformity in procedures adopted by different states. There was no standard procedure available for checking goods and documents of truckers. In states such as Maharashtra and Rajasthan, truckers had a comparatively easier time as they needed to spend just around half an hour on average at the checkpoint. In states such as Bihar and Jharkhand, truckers would end up spending a gruelling two hours or even more at every checkpoint.
These checkpoints were managed and handled by the Commercial Tax Officer or Regional Transport Authority. They verified the consignment-related documents, the validity and eligibility of the trucks, and the drivers too. Long hours of stoppages at these checkpoints resulted in a wastage of time and idling of resources. It has certainly been one of the critical reasons for the incompetence and inefficiency of the Indian logistics industry.
After GTA fell under GST, the situation has improved dramatically and has delivered significant benefits to the transporters.
Areas of Key Impact
Documentation - Transporters no longer have to produce VAT forms. Many states have introduced modified forms that are easier to fill. All information can be viewed in one place at a glance.
Checkpoints - Most of the states have already demolished and removed checkpoints. This has resulted in a smooth and faster movement of trucks at the state borders.
OCTROI - Having GTA under GST has resulted in the elimination of OCTROI collection. This has come as a huge relief for truckers, especially in cities like Mumbai, where serpentine queues of trucks were a common sight. They had to spend hours on end just to make a simple OCTROI payment.
Truck Movement - As per a Ministry of Road Transport and Highways release, trucks used to cover around 225 km a day before GST implementation. This has now improved to around 300-325 km per day. The government is upbeat about the proposed E-way Bill, which is expected to ease freight movement further and reduce delivery times.
Under this bill, trucks with goods valuing more than INR 50,000 must complete an online registration process. The online receipt generated will act as a valid goods ticket for the entire journey. This will not only help in better coverage but will also ensure better transparency and convenience.
Warehouse Investments - As every state in India has its own taxation slab, transportation companies were forced to invest in warehouses in every state. This costs them large sums of money. The maintenance of these warehouses also drained their limited financial resources continuously. Lack of finances led to poor upkeep and maintenance of these trucks, resulting in dilapidated and stuffy godowns. The goods stored in such places were also at a higher risk of damage. GTA under GST has helped eliminate this significant problem for the transportation industry. They don’t have to invest in a separate warehouse in different states, resulting in a fitter, leaner, and smarter logistic chain. The offshoot of this development is the growing interest in India’s warehousing business through Foreign Direct Investment. In recent years, key players have already invested around $1.5 billion in warehousing facilities in India.
Having been subjected to the hassles of long waiting times, corrupt checkpoint officers and extended delivery times, the transportation industry had given up hopes of improvement in the way business was run. Also, the industry is known for its resistance to change. They are averse to investing in new trucks or embracing technology. PlacingGTA under GST has shaken the industry to its core. However, the manifold positive benefits of GST for the sector have come as a sigh of relief for transporters.
The general feeling is that of relief. Placing GTA under GST is not as disruptive on the ground level as it may seem. Also, as most transporters are covered under GTA, they need not immediately connect with the Goods and Services Tax Network (GSTN). They also don’t have to worry about the Harmonized System of Nomenclature (HSN).
In the previous year, transporters had a good run right through the year, even in the so-called lean months. With OCTROI gone and major markets with huge potential such as Mumbai becoming easier to manage than before, the business potential for major transporters increased tremendously in the previous year. However, GST has also created some challenges for the industry that’s not regarded as tech-savvy.
Shippers are concerned about Delivery TAT and Real-Time Status, which involves handling of technology. With warehouses getting consolidated, customers need a smarter and agile fleet to match the enhanced distribution needs. This cannot be achieved without leveraging smart technology.
Transporters must become Third Party Logistics providers and provide end-to-end service. Without a good grasp on technology, this may be tough to implement. The rolling out of the E-way bill entails data transfer to the transporter in real-time. This must be done before the journey starts.
The transportation industry is slowly but steadily adopting these massive changes in its work processes and embracing technology, one step at a time. In order to leverage the benefits of GTA under GST even more, the transportation industry must be ready to adapt to more massive changes as they progress.
Basic GST-Specific Information
How to Register for GST
The GST Council has created a unique process for various transporters to register under GST. You must register for GST before starting your business operations under the new regime. You can opt for registration in the total turnover standard; however, there is an exception for states that come in the special category. You must register for GST if you are doing more than INR 20 lakhs worth of business in a financial year. For states that come in the special category status, the aggregate turnover is INR 10 lakhs.
When you research information on how to apply for GST, you will learn that the following documents are needed for registering your company on the E-way portal.
How to get a GST Number
You must know how to get GST number before starting your business operations. These are the steps you must follow to apply for GST number:
Growing Demand For Logistics Services
GST has triggered a growing demand for logistics services. There is a seamless flow of goods from one state to another without the usual, hassling roadblocks. The demand for quality logistics service is expected to accelerate as everyone wants faster delivery and efficient management of goods on the roads.
According to experts, as a growing economy, India cannot afford roadblocks in its path of progress. The high cost of logistics had a profoundly negative impact. Getting GTA under GST has helped with this problem. Also, the speed of freight transportation has improved dramatically over the years, post-GST. Trucks are now moving at a speed of 40 km per hour from the previous rate of 20-25 km per hour. The distance covered daily has nearly doubled in the past year. GST has also made 99% of all transactions transparent.
Logistics parks are playing the key role of freight aggregators. They have become the modern distribution hubs and are fully capable of facilitating long-haul freight movement. This has also helped in reducing freight transportation costs.
The One Happy Solution for All Transportation Business Owners
Small transport businesses need not worry about GTA under GST. A business with an annual turnover below Rs 20 lakh will not have to pay GST. Those with a turnover between Rs 20 lakh and Rs 75 lakh will have to file the return. Undoubtedly, some challenging steps were necessary to help revamp the transportation industry. The introduction of GST has had an immediate positive impact and will continue to benefit the sector as the law develops further.
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