Impact of GST on Transport Industries: Fundamentally every industry is likely to get benefit from GST as it will make the overall process of taxation simpler, less bureaucratic and efficient, out of which one industry shall be Transport & Logistics. Since long back, this industry had been attracting various types of levies due to inter-state logistic structure based on the state taxation system which made it inefficient and clumsy. The Indian transport and logistics sector is primarily categorized into various segments consisting of transportation, warehousing, freight forwarding, pool distribution, packaging solutions, inventory management, management consulting, logistics optimization, etc. Check more details for Impact of GST on Transport Sector from below,,,
Impact of GST on Transport Sector
Yet unorganized sector expects Centralization:
Due to nature of its state level of taxation, this sector has remained largely unorganized. Existing tax structure has compelled companies to establish warehouse in every state that makes the supply chain longer and inefficient resulting to spend 60% time in tax clearances. As it is expected, GST tax will be levied on transportation of goods and full credit is available on interstate tax structure. Efficient GST will lead to centralization of claim credits.
GST will confer path for Consolidation:
Lesser interstate compliance and reduced paper work will lead to decrease in turnaround time. Reduction in delivery time would also lead to remodelling and leveraging of supply chain mechanism across industry. We may encounter a few new regional warehouse hubs in all four corners of the country. With better use of technology consolidation of channels are bound to happen that will also throw cost advantage on large scale basis. In a single taxation regime, a lot of taxes will get replaced such as entry tax, octroi, which will ease the burden of paperwork on the logistics service providers.
Critical Input Realignment:
Currently this sector is paying service tax under both reverse charges and forward charges. After abatement effective tax rate comes to 4.5% subject to input tax credit is not available on all input and input services. Because HSD is key input for this sector and not creditable, so abetment is kept to minimize tax burden. HSD is expected to be brought under GST soon for tax credit, as it acts as major input for transport and logistics industry.
GST Compliances and Dual Model Tax Structure:
Post GST implementation as envisioned all state fences, payment of entry tax, bills checking and documentation compliance will be abolished to a certain extent. Due to Dual Model structure of GST, CGST & SGST will be levied on intra state supply of goods and services, whereas IGST shall be levied on interstate supply of goods and services. Drawing a line of consolidation transporter will have to make core decision of location planning and supply channel more accurately to reap the benefits.
Impact of GST Rates on Transport Sector
| Tour and Travel: Cheap for the common people, expensive for the business class | |||
| Service | Old | GST | Diff |
| Non Ac Rail Ticket | 0 | 0 | 0 |
| AC Rail Ticket | 4.5 | 5 | +0.5 |
| Transporting goods by train | 4.5 | 5 | +0.5 |
| Transporting goods by truck | 4.5 | 5 | +0.5 |
| Tour operator | 9 | 5 | -4 |
| Cab service | 6 | 5 | -1 |
| Air Economy | 6 | 5 | -1 |
| Air Business | 9 | 12 | +3 |
Third Party Logistic Service Providers (3-PL):
After GST implementation 3-PLs will have to restructure their operations in order to cope up with client’s operations. At present 3-PL’s connectivity of its major warehouses to theirs important clients are dispersed with geographical disadvantage to avoid interstate taxes. This scenario will be abolished in GST post implementation phase due to integration of warehouse operations by accommodating large distance consignment. Consumer-oriented industry will fetch large benefits than capital intensive industry, as former have their warehouses in various states to avoid interstate taxes.
GST on Road Ways Transport:
The Indian Government has concluded to levy a cess 15% over the existing GST of 28% on transport buses. So we can also say that public transport vehicles comes under the same tax slab as the hybrid vehicles and luxury cars falls for. As per the latest notification from the Finance Ministry, motor vehicles transporting ten or more persons including the driver will attract a cess of 15%. The total tax rate stands at 43 %.Currently, the tax rate on transport buses stands at 27.8%. Society of Indian Automobile Manufacturers (SIAM) stated that the GST tax rate would hamper the public transport.
Cab rides will get cheaper as incidence of tax lowered to 5% from 6%.
As proposed under GST, movement of goods worth more than Rs 50,000 within or outside a state will require applying for an e-bill through online registration of the consignment. Tax officials are empowered to verify the validity and accuracy of the e-bill to avoid tax evasion. Though the intent seems to be good, but due to process of multi-layered declaration it may prove to be cumbersome.
GST on Rail Ways Transport:
Under existing tax structure service tax is being paid on railway transport services on 30% value taxable services (70% being abatement) which comes to 15%*30% = 4.5% effectively. GST is capped at 5%, as announced on 19th May 2017. End consumers will find ticket prices will increase slightly under GST, but still business travellers can now claim as input tax credit against the output GST liability.
No GST on Transportation of Certain Goods
Service tax is not applicable on the transport of the following goods:
- (a) Relief material for disaster struck areas (food for flood victims etc.)
- (b) Defence or military equipment
- (c) Newspaper or magazines registered with the Registrar of Newspapers
- (d) Railway equipment or materials
- (e) Agricultural produce
- (f) Milk, salt and food grain including flours, pulses and rice
- (g) Organic manure
GST on Air Ways Transport:
Tax rate for economy class flight tickets lowered to 5%, whereas for business class tickets it will attract a levy of 12%.
GST on Water Ways Transport:
GST will be applicable on –
- Transport of coastal goods;
- Transport through National waterways; or
- Transport through Inland waterways services
Exemptions under Transportation
Transportation by:
Road except the services of—
- a goods transportation agency; or
- a courier agency.
Inland waterways – Transport of passengers
Air, going to or coming from airport located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra (West Bengal)
- Non-AC contract carriage other than
Radio taxi or for the Transportation of passengers (excluding tourism, conducted tour, charter or hire)
- Non-AC horse carriage
Written By: Amit Khiyani (CA, LCS, IFRS, BCom)
Contact: [email protected]
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