Sunday, September 11, 2016

GST effects for Transporters

Finally GST is passed by the lower and the upper house. There is lot of discussion in the country about the impact of the proposed GST. The benefits of the GST cannot be denied. The major benefit is the removal of cascading effect of different type of taxes. Another benefit is the uniformity of the taxes and the laws related to the Taxes all over the country. As announced by the Finance Minister the basic principle of GST will be to keep it RNR which means revenue neutral rate. In other words the rate of GST will be decided in such a way that the central government as well as the State governments do not lose their revenue in comparison to the present collection. At the same time public get goods and services at a lesser price. Theoretically it sounds a win-win situation however how will this be achieved that is yet to be seen. The bill itself does not answer all the questions. The answers will come  later when the GST Council will formulate the details like rates and exemptions.
There is an euphoria among people involved in Logistics business. Many GST gurus are predicting that there will be major reduction in the overall logistics cost. I personally do not see much of change from the present position. Let us analyse the impact of GST on different components of transportation and logistics. The following are the major cost  components - 
1. Cost Of the vehicle- 
The excise duty on the vehicles is 12.5%. The VAT also is 12.5%. Due to the cascading effect it works out to about 27%. If GST is kept at 18% then there will be a saving of about 9% in the tax.
2. Cost of diesel - diesel and other petroleum products have been kept out of GST therefore no effect.
3  Cost of tyres-The excise duty on the tyres is 12.5%. The VAT also is 12.5%. Due to the  cascading effect it works out to about 27%. If GST is kept at 18% then there will be a saving of about 9% in the tax. 
4. Motor vehicle tax- none of the taxes connected to commercial motor vehicle are subsumed in the GST therefore no effect. 
5. Toll Tax- there is no change in the implication .  
6. Insurance- presently the vehicle insurance premium is subject to 15% percent service tax. If GST will be applied at the rate of 18% it will increase the cost of insurance. 
Thus we see that in the operating cost of the commercial vehicle there is hardly any impact. 
Effect on warehouse services
Warehousing in India is done for two purposes. Many manufacturers and traders have been having their houses for the purpose of better distribution and logistics. GST will hardly impact this type of warehousing. However there have been warehousing for the purpose of tax planning. People have been transferring their stocks to other states to their warehouses and have been charging the local VAT. This kind of warehousing will no more be required. This cannot be treated as the good news for the logistics business even though this is a good news for the manufacturers. 
Check posts on the highway
Everyone is assuming that there will be no check posts after GST. However the real situation would be different. The check posts have been created by states at entry and exit points of the state. The purpose of this has been to record the entry of a loaded truck into the state and to ensure that exit of the same loaded truck from the state if the goods loaded are meant for other states. The reason of this exercise was that there have been a fear in the mind of state tax authorities that the goods may get offloaded in the state even though the invoices were made in favour of another state. Such goods would be sold without any document hence causing a loss of tax to the state.
As per the GST Bill the revenue of GST will be shared between central government and state government. That means every movement of the goods will be watched by the states who are having interest in the GST associated with the goods. This situation will be applicable to all the states hence I don't foresee any removal of the check posts. In fact I fear that there may be more check posts and more paperwork after GST.  
Somebody may argue that why should anyone sell goods without documents when there is a chain of GST from the point of manufacturing. The answer is that India has a parallel economy of black and white. Those who have black money they want to buy goods without paperwork so that they do not appear anywhere in the system. At the same time, there are people who are interested in just the documents to avail the input credit. 
Who will pay the GST ? And how much ?
This question arises only with respect to transport companies. The reason is same as what was applicable in case of service tax. The main raw material of transportation that is the diesel has been kept out of the cycle of GST. That means that a transporter cannot take the credit of taxes included in the price of diesel. Diesel accounts for nearly 55% of the cost of operation. The same situation had arrived when the service tax was made applicable to the transport services. At that time a committee was formed by including representatives of the government and the transport Associations. This committee after much deliberations concluded that service tax be charged only on 75% of the freight and no input credit should be taken by the transport companies.
Further it was decided that the service tax on transportation should be paid by the service users directly to the Government instead of paying that to the service providers. This mechanism of payment of service tax is called reverse charge. In the GST bill which has been recently passed also there is a provision of the reverse charge. In all likelihood the GST will also be applicable on the transporters in the same fashion as service tax was. 
However, all this is a speculation at present. But this is also the time for all the stake holders to start thinking and planning. It is the trade which decides the policy and the minster understand it. The outcome is always for the betterment of the country. 

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