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.
