Businesses have been scrambling to rejig their systems and processes to meet this new deadline, and there are concerns about the elaborate compliance mechanism that has been put in place. This requires registration and filing of returns with each of India’s 29 states and seven union (or federal) territories. These concerns are especially palpable for SMEs.

But while people expect short-term challenges in transiting to a new system and initial teething problems with compliance, the overall mood is upbeat. This radical change in the taxation system creates a truly unified market and reduces transaction costs. India had highly fragmented supply chains that were the result of multiple taxation regimes that are now being replaced by the single GST. Logistics and inventory management costs in India are estimated to be around 14 percent of GDP. Similarly, the additional cost of compliance in dealing with a multiplicity of taxes is estimated to be around 1.5 to 2 percent of GDP. This made India a high-cost location for production, which meant it often lost out to competitor countries in South East Asia and East Asia as a preferred manufacturing destination.

As companies settle down and get familiar with GST, they will start re-designing their supply chains and transport networks to focus on efficiency. There will be increasing moves to larger warehouses that provide economies of scale, and more efficient and time-definite trucking and transport solutions. Conversations in major business chambers indicate that larger firms will start this process by early 2018, and SMEs by the end of 2018 and the beginning of 2019. This represents a huge opportunity for logistics firms to be a partner and catalyst for change.

GST comes at a time when India has a strong start-up culture emerging with multiple user warehouse spaces and tech-enabled aggregation solutions that seek to ‘uberize’ transport and warehousing. GST would accelerate these trends that could radically change how Indian businesses manage their supply chains and procure logistics services.

There are certain policy areas that are still being deliberated; a critical one is the nature of administration of movement of goods and related documentation and on-road inspection. Resolution of such matters in a manner that serves the objective of seamless transport of goods across India’s state borders with minimum hindrance would be key to achieving the full potential of GST reform. — Pritam Banerjee

Summary of key facts about GST and the next steps towards implementation

  1. The GST will have a four-rate tax structure; 5 percent on items of basic consumption such as food, rates of 12 percent and 18 percent on most other goods and services, and 28 percent on what the government defines as “luxury” goods that would cover expensive consumer items.
  2. Certain items such as oil and gas and alcohol for human consumption have been kept out of the ambit of GST.
  3. The GST Network (or GSTN) would serve as the common platform for filing returns and management of tax credits.
  4. The final form of documents required for movement of goods, i.e. e-waybill, and the procedures for intra and inter-state transit, are yet to be finalized

Published: June 2017

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