Impact analysis of GST on road transport sector
It has been more than a decade that we all are waiting so desperately for this significant tax reform since independence. As we all know India is a federal country where multiple states Govt. works along with one union Govt. called central Govt.
Our constitution is drafted in such a way where both the Govt. got powers to levy tax without encroaching each other. In our existing system the union Govt. levy excise duty, service tax and custom duty whereas state Govt. levy value added tax, central sales tax, entry tax, entertainment tax and luxury tax and so on.
Looking at the multiplicity of taxes at each level a single uniform tax is envisaged in the form of GST which will be common across the country for goods as well as services. The most fascinating thing about this tax is that it will subsume most of the existing indirect taxes and will known with a name GST.
Glimpse of various sub sector under logistics industry:
|S.No.||Sub Sector||Area of operation|
|1.||Transportation sector||By road, rail, air and water|
|2.||Courier companies||Delivery of goods and documents|
|3.||Clearing and forwarding agents||Handling and delivery of goods from place of origin till port/ airport.|
Road transport sector in India:
If we analyze Indian logistic sector almost 60% of that consisted by transport sector and out of transport sector 36% is occupied by road transport mainly. Road transport is most suffered industry of existing taxation system where resources remains unutilized due to various road permits, entry tax, inspection of documents etc. The proposed GST will cut short the time taken to deliver goods, saving of fuel, saving of additional expenses at check posts due to corruption etc. In this article all the possible opportunities, actions plans to be taken and representation to Govt. authorities on various issues are discussed.
Impact on taxation part:
As of now this sector is paying service tax under both reverse charge and forward charges and the effective tax rate after abatement comes to 4.5% subject to condition that ITC is not available on all input and input services. This is because HSD is key input for this sector and it is not creditable at all therefore abetment is kept to minimize tax burden.
In the proposed GST regime initially HSD is not part of GST hence again it will be non creditable unless it is included under GST. The rate of tax on goods and services will be same accordingly as suggested by CEA rate of tax on services may be more than 15%. Overall in our view the rate of tax on services should not be more than existing level and abatement for non inclusion of high speed diesel must be available otherwise taxation burden on industry may shoot up significantly.
Increased ease of doing business:
Once GST is implemented as envisaged all barriers at state borders, payment of entry tax, checking of way bills will be eliminated which will give a huge relaxation to the sector. According to a study, a goods vehicle in India covers only 250-300 km a day compared to 700-800 km in developed countries such as the US and Europe which resultantly increases cost of freight. Almost 40% of the time of goods vehicle get wasted in unproductive task as discussed above. In light of above we see significant benefits to the sector as a whole under GST.
Place of supply in case of GTA?
We are going to have dual GST model where CGST, SGST shall be levied on intra state supply of goods and services whereas IGST shall be levied on interstate supply of goods and services. Now the million dollar question which becomes important is determination of correct place of supply.
The place of supply of services by way of transportation of goods, including by mail or courier to : (a) Registered person-location of recipient (B2B) (b) Person other than a registered person-location at which such goods are handed over for their transportation (B2C).
Place of supply shall be identified under GST to know the nature of tax which shall be paid under GST. If GTA is registered in Delhi and services supplied to another registered person (B2B) in U.P place of supply in this case shall be U.P and accordingly IGST shall be paid.
On the other hand if services supplied to an end consumer (B2C) and goods are handed over in Delhi for its transportation place of supply shall be the location where goods are handed over which is Delhi and CGST and SGST shall be paid. So it becomes most important to identify correct place of supply to pay taxes under GST.
What actions GTA industry has to take?
In this write-up we are outlining certain issues which are a matter of representation of sector as a whole and needs resolution before final law becomes applicable.
1. As to make industry more competitive and profitable high speed diesel must be brought under GST as soon as possible so that credit can be claimed on major input for industry
2. The model law as issued by Govt. is not clear on the % of abatement which will be given unless HSD becomes part of GST. Till the time clarification must come from Govt. side otherwise tax impact for sector will shoot-up significantly.
3. The rate of GST on road transport sector must not be more than existing levels because once the cost of fright is inflated prices of goods will also shoot-up and will cause inflation in the economy.
4. As envisaged under GST that numbers of papers documents to be carried with goods vehicle shall be minimum but model law prescribes some documents to be carried with goods vehicle if value exceeds Rs. 50000. These kinds of provisions should not be continued under GST otherwise it will defeat the concept of free flow of goods.
5. On careful reading of model law it hints somewhere about presence of flying squads to check movement of goods if need be arises. This move is completely anti to road transport sector because it will become precedence for field officers to check vehicles. In our view the checking system must be digitalized so that human intervention can be reduced to minimum.
Key business decision for road transport sector:
1. Engage with Govt. to on the above said issues outlined by us in previous paragraph.
2. Make strategy to plan out the location of its vehicles depending upon consolidation of warehouse in supply chain.
3. Pricing decision depending upon change in rate of tax and increased efficiency in supply chain.
4. Required change in IT system depending upon information required under GST for invoices and monthly returns.
Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose. It doesn’t constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.