Introduction to taxation in India:
The tax structure in India is divided into two types i.e. Direct tax (Income Tax) and Indirect tax (central and state level). Let us also understand who levies taxes on what kind of duties.
Central Government levies on the following
- Income Tax (Tax on income earned by a person)
- Custom duties (Duties on Import and export of goods)
- Central Excise (Manufacturing of dutiable goods)
- Service tax (taxes on provision of services).
State Government can levy the following taxes
- Value Added Tax (VAT)
- Stamp duties and land revenue
- State Excise
Goods and Services Tax (GST)
The Government of India proposed that indirect taxes levied by both central and state governments will be replaced by the Goods and Services act. It would come into existence from April 2016. It is a comprehensive direct tax which is levied on manufacturing, sale and consumption of goods & services at a national level. It will create a huge impact on business operations within the country such as product pricing, supply chain optimization, IT, accounting and many other systems. The existing tax system as a cascading effect which will have negative impact on system.
Impact of GST on Logistics Sector:
India spends 13% of its GDP on logistics, whereas developed countries spend only 8–9% on an average.This shows how unorganized our logistics industry is functioning. The opportunities are huge for both customers and corporations, it gives new look to their entire distribution and supply chain systems. We have 29 States at present and goods move across the country’s border at different tax rates. Due to this, freight movement which happens within the country is taxed multiple times. Moreover, there are long queues at interstate check posts, as the authorities examine the freight which is moved and levy taxes which are applicable. Truck delays amounts to 6–7 hours of wait time at interstate check posts which includes lot of manual work by the authorities. Since 65% of the freight in India moves by road, it is a fact which leads to see the logistics experts to look into the GST as a crucial area of concern in India.
According to World Bank estimations, Indian companies could save up to 30–40% logistics cost on the higher side, having the delays due to unforeseen roadblocks, tolls and unplanned stoppages eliminated reducing freight time. This impact can give boost to the productivity in the manufacturing sector.
Once GST comes into existence it will free decisions on distribution and warehousing from availing tax considerations which in turn would give rise to operational efficiency and logistics transparency. Even the small logistics players would benefit from major tax reforms. To conclude GST would equally benefit other sectors so as logistics sector.