Keku Bomi Gazder, CEO, AAICLAS, talks about the present state of ‘ease of doing business’ in the Indian logistics industry and how the company is following suitable steps to set a benchmark.
The government has made considerable inroads into ensuring a favourable business climate in Indian logistics Industry. The recent initiative, to implement the Goods and Services Tax (GST), which promises to integrate India’s multi-layered indirect tax system into a single unified one, unshackling India from its bureaucratic web and improving the ease of doing business.
The changes in the indirect tax system has reduced the transportation cycle times, enhance supply chain decisions, lead to consolidation of warehouses, etc. which helps the logistics industry reach its potential in terms of service and growth.
Multiple warehouse strategy
India became a common market without any differentiation between inter-state and intra-state sales, thus ensuring a cumulative tax incidence with both the transactions being taxed equally.
Thus, the multiple warehouse strategy becomes ineffective in reducing the inter-state tax incidence. It has also shift the pattern of supply assignments, supplier channels which lead to a change in transport routes for logistics companies, accordingly.
Reduction in Transit time
After having a unified market under the new GST regime, the flow of goods within the country became smoother. Scrutiny at the borders checkpoints has also been reduced. This change has brought the logistics companies to deliver goods more efficiently and optimise delivery times as compared to the earlier arrangement. The reduction in delivery time has lead a reduction in distribution costs by 10-15 per cent, thereby lowering the final price of the goods.
Petroleum products required
Although GST brings a sense of respite for the logistics industry, there is one major drawback – keeping petroleum outside the purview of GST. If corrected in time, this could give the logistics industry another reason to appreciate the GST regime. After much deliberation, petroleum has been brought under the purview of GST but it will be exempt until a date announced by the GST Council. In the defence of the logistics industry, as petroleum is one of the major inputs for this industry, it would be a welcome move if petroleum were to be ‘non-exempt’ right from the start.
This would enable logistics companies to avail credit for the petroleum used in the course of providing logistics services.
Impact of GST
With GST, government reform initiatives, promotion of manufacturing and trade, improving investment climate are expected to transform the industry and drive growth between 2016 and 2020. Development of transportation and logistics-related infrastructure such as dedicated freight corridors, logistics parks, free trade warehousing zones, and container freight stations are expected to improve efficiency.
Steady Increase in Tax Base
GST is a multi-stage tax, it provides for an input tax credit mechanism, and since every link in the value chain, including dealers and distributors, will require evidence of compliance by its preceding link to claim the required set-offs, it is likely to broaden the tax base by increasing voluntary compliance.
As the GST payments by tax-payers will be linked to their respective Permanent Account Number (PAN) and the National Securities Depository Limited (NSDL), which maintains the Tax Information System (TIN), will also look after the GST database. This integration of the indirect tax system with the income tax system will enable authorities to triangulate information, thereby automatically leading to improved tax buoyancy. Also the structural nature of this tax reform is likely to create a better environment for doing business in India over time, which would create a platform for higher economic growth. It will bring down costs within the system, give better control to government on taxation, reduce unaccounted part of the economy, thus adding to government resources. This benefit could be then used to fund India’s development and increase its competitiveness within the global economy.
Uniformity in Tax Rate
Standard tax rates will allow corporations to move away from the practice of building a warehouse in different states to adhere to each state’s tax code. A big packaged consumer goods company could thus make do with one large mother warehouse at critical points in the country and employ logistics companies to manage distribution and supply chains.
The GST is expected to increase efficiency in inter-state transportation of good at reduced costs and to act as a formidable deterrent to across-the-border corruption and monopoly of local booking agents, by allowing broader scope for fair play which benefits all parties involved – business, consumers, states and the Centre. There may be some negatives of the GST policy like fuel, a prime element, still lies outside the ambit of GST and the concept of E-way bill, while promising better regulation and monitoring of the logistics sector, may still come under the scanner for inviting needless bureaucratic intervention, the very thing plaguing the segment at this point of time. However, while to weigh the pros and cons of the reformed tax policy, it would come to light that the benefits far outweigh the negatives. GST is a disruptive force on the surface of the current ecosystem that spells much hope, efficiency and prosperity for the entire logistics sector in general thereby easing the way forward for doing business in Indian logistics industry.
In order to make the processes easier and hassle free in respect of EXIM cargo movement from the AAICLAS facilities, efforts are on to simplify and to set a benchmark in the following areas of operation:-
To bring down the 20 stages of import cargo clearances and 16 stages of export cargo processes to the minimal.
Customs EDI facility at all AAICLAS cargo terminals.
24×7 International cargo clearance facility at Chennai/Kolkata and other airports.
To synchronise the deployment of manpower in respect customs, facilitating agencies and other stakeholders for 24×7 cargo clearance.
To take up the issue of waiver of customs cost recovery charges for the customs manpower deployed at smaller AAI airports.
Transfer of Customs Custodianship from AAI to AAICLAS.
Flight Connectivity issues at Surat, Aurangabad, Amritsar, Guwahati airports.
To house the offices of some of the Regulatory Authorities viz. Animal Quarantine, Plant Quarantine, FSSAI/Wild Life Authorities, APHO, Drug Controller and Textile Committee under one roof at cargo terminals.