Impact of goods and service tax on warehousing industry in India

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Logistics sector plays a vital role in the development of our country. Indian logistics industry has been showing a steady growth. Goods and Service Tax (GST) is India’s greatest tax reform.

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International Journal of Management (IJM) Volume 8, Issue 5, Sep–Oct 2017, pp. 111–115, Article ID: IJM_08_05_012 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=5 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication IMPACT OF GOODS AND SERVICE TAX ON WAREHOUSING INDUSTRY IN INDIA R. Swathi Student, Saveetha School of Management, Chennai, India Siranjeevi Assistant professor, Saveetha School of Management, Chennai, India ABSTRACT Logistics sector plays a vital role in the development of our country. Indian logistics industry has been showing a steady growth. Goods and Service Tax (GST) is India’s greatest tax reform. In India, GST is implemented to unify the entire country into a single market with only one value- added tax levy on all the goods and services across states at the point of consumption, comprising up to 16 different taxes. The specific objective of this article is to analyse the impact of Goods and Service Tax (GST) on logistics and specifically on warehouses situated in India. Key words: Goods and Service Tax (GST), Logistics, Warehouse. Cite this Article: R. Swathi and Siranjeevi, Impact of Goods and Service Tax On Warehousing Industry In India. International Journal of Management, 8 (5), 2017, pp. 111–115. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=8&IType=5 1. INTRODUCTION Logistics is the management of movement of things between the point of origin and the point of consumption in order to meet requirements of the clients. The logistics of physical items usually involves the combination of information flow, material handling, production, packaging, inventory, transportation, warehousing and often security. Warehouses are part of a logistics management system. Although some describe it as simply a place to store finished goods, packing of those goods and shipping them, it provide important economic and service benefits to both the business and its customers. Operations such as order consolidation, order assembly, product mixing and cross-docking that take place within the warehouse structure adds value to the overall logistics system. Under GST, the tax on warehouse, storage and other labour services has increased from 15% to 18%. Implementation of GST will free the decisions on warehousing from tax considerations and decisions will be purely based on operational and logistics efficiency. This will lead to change in dimensions for logistics requirements of the clients forcing logistics http://www.iaeme.com/IJM/index.asp 111 editor@iaeme.com
R. Swathi and Siranjeevi service providers to rethink their business operations including creating new warehousing and logistics locations and expanding / closing existing warehouses at certain locations. 2. REVIEW OF LITERATURE • A wave of consolidation is sweeping over the Rs 50,000-crore warehousing industry-GST triggers consolidation in warehousing industry (Economic times August 18, 2017). • A dozen new warehousing hubs are likely to emerge in the country in the wake of Goods and Services Tax (GST) rollout in July-GST rollout to see emergence of 12 new warehousing hubs(The Hindu business line May 3-2017). • Warehouses will move to consumption-and-transportation network areas-GST unveiled Warehousing industry to see reorganization (Business standard May 30, 2017). • GST is India’s biggest tax reform-GST set to transform face of Indian logistics industry(Hindustan times Jul 06, 2017) • The passage of GST bill, when it happens, can spur large warehouse related investors by logistics providers to derive cost savings from route and warehouse optimization (Business Line July 3 2016-Transport Corporation of India: En route to growth). • GST, a revolutionary tax reform that unifies India’s USD 2 trillion economy into a common market with its simple and unified approach aims to immensely benefit the warehousing sector in India-GST a positive impact on the warehousing sector in India(Industry news digest Jul 07,2017) • Logistics is one tricky sector that is surely going to benefit once the Good and Service Tax (GST) gets rolled out from July 1. However the results won't be too quick-Here's how GST is going to be ‘legendary’ for logistic industry in India(Business Insiders MAY 26, 2017) 3. OBJECTIVES OF THE STUDY • To analyse the impact of GST on Logistics Industry especially on Warehouses. • To present the advantages to Logistics Industry in India after GST implementation. 4. METHODOLOGY OF THE STUDY Being an explanatory research, the research methodology is based on secondary data that comprises research articles of the experts from journals, newspaper and magazines. 5. BEFORE THE IMPLEMENTATION OF GST All the 29 states of India taxes goods that move across their borders at various rates. As a result, cargo that moves across the nation is taxed multiple times. Before GST, companies rented warehouses in every state because each state would impose its own tax Different taxes like octroi tax, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods has to be paid. Thus during the process of entire supply chain multiple layer of taxation is done. 6. IMPACT OF GST ON WAREHOUSING INDUSTRY: The following are the change that has taken place in the warehousing industry after the implementation of GST in India. 7. REDUCTION IN THE NUMBER OF WAREHOUSES The locality of warehouse is mostly chosen to minimize the cost of delivery for both the company and the customer. Usually companies operate with multiple warehouse strategy. They have different warehouses at different state in order to avoid interstate taxes while transporting from one location to the other. http://www.iaeme.com/IJM/index.asp 112 editor@iaeme.com
Impact of Goods and Service Tax On Warehousing Industry In India The demand for logistics and warehousing was mainly concentrated in Bangalore (24 percent), Delhi-NCR (21 percent) and Chennai (20 percent) representing that the southern cities led demand during the review period. Mumbai with a contribute to 13 percent was the only other city to witness ample transaction activity. Except for Kolkata, and Pune, all other cities recorded an raise in absorption of space during the period. With the implementation of GST the decision of warehousing will now be based on the handiness of labour and customer not on CST and VAT rates.The local state taxes are eliminated and there will be only one goods and service tax across the entire nation. This enables the companies to achieve cost efficiency in their operations and thus transferring this cost benefit to the end consumer in the supply chain. Thus Companies would have one big consolidated warehouse at a central location which might serve multiple states leading to decrease in the number of warehouses. Instead, companies may choose for warehouses at specific locations on the basis of hub and spoke model. Hence GST will have a direct impact on the total count of warehouses in a supply chain. Before GST implementation, a firm stocks 5 units of product A in 10 small warehouses, after GST implementation the same firm would stock 25-30 units of the same product A in one extra-large warehouse, without compromising order completion efficiency. 8. LOGISTICS TIME On report of entry taxes and heavy paper work at state check posts, there is an extra 5-7 hours added to the transport time for inter-state transport of goods. Over the time there will be a move towards a 'hub and spoke' model in which less but bigger trucks will move between bigger warehouses. In addition, flow of goods is expected to get better with reduction in turnaround time as VAT related check posts will be removed. It may lead to 15-20 per cent decrease in the truck stoppage time. This will also lead to faster and increase in the number of deliveries. Abolishment of both the entry tax and easier tax compliance actions is likely result in easier movement of goods across the country. 9. TECHNOLOGY IMPLEMENTATION As mentioned earlier, consolidated warehouses would be bigger in size for accommodating more inventory at a central location, these warehouses would definitely benefit from technological superiority by implementing state-of-the-art planning and warehousing systems which are not possible in smaller and distributed warehouses. There would be indirect impact of GST on warehousing in India, as cost of IT for deploying ERP systems at smaller warehousing locations would be eradicated. It makes partial or full mechanization with latest Warehouse Management Systems (WMS) and modern robotics, reasonably feasible for extra-large warehouse hubs. Analysts also predict that it will guarantee better-quality service levels at lower cost in overall supply chain. 10. COST BENEFITS There will be less number of tolls and check posts and full credit will be available on interstate businesses. So, businesses will overall have Cost benefits after the effect of GST. The move to reduce total number of warehouses in favour of operating out of a few strategically-located ones will help companies streamline distribution and save costs. After the application of GST, E- commerce, consumer electronics, automotives, pharmaceuticals and FMCG players will own or lease larger warehouses at major locations such as Mumbai, Delhi, Ahmedabad, Chennai, Bengaluru etc. http://www.iaeme.com/IJM/index.asp 113 editor@iaeme.com
R. Swathi and Siranjeevi Thus there is an estimated growth of around 18 % in warehousing until 2017, which will be above 20% in the coming years with GST’s implementation. Warehousing industry is bound to get more organized and overall profits are there to be gained. 11. MORE ORGANIZED WAREHOUSES Warehousing industry will sense the impact of GST as the need to build warehouse in each state will be almost over and this will lead to better organized warehouses and ultimately it will enhancing the overall efficiency. Otherwise, it would have been complicated when those warehouses are sustained by 20-30 Clearing and forwarding agents leading to complexity in supply chain and causing inefficiency. 12. INVENTORY CONTROL AND DEMAND FORECASTING Number of warehouses leads to complicated warehousing decisions like setting up of huge inventory and at times running out of inventory when demand rises suddenly. GST would have a huge impact on inventory efficiency as there would be lesser stocking points and case of stock outs would also be fewer. This will all be due to businesses taking benefit of economies of scale and making better prediction for the upcoming demand, thereby guaranteeing that supply chain process is up and running. Surely, this will lead to a positive influence of GST on warehousing in India. 13. INCREASE IN THIRD PARTY LOGISTICS The third party logistics will rise after the implementation of the GST. Its market under the warehousing sector in India is predictable to be value of $301.89 Billion by 2020. 14. CONCLUSION GST is a win-win solution for all the stakeholders. It is a significant aid for increased prosperity. GST could lessen transportation cycle times, enhance supply chain decisions, lead to consolidation of warehouses etc. which could help logistics reach its potential in terms of service and growth. So it will be great bang for the logistics sector which is leading to accelerated economic growth. We can conclude that it is in the favour of warehouse industry to introduced GST, so that warehouses will enjoy the benefit of it. REFERENCES [1] https://retail.franchiseindia.com/article/operations/logistics-and-supply- chain/GST---How-will-it-change-the-dynamics-of-the-Logistics-industry-in- India.a5228/ [2] http://holisollogistics.com/impact-of-gst-on-warehousing-in-india/ [3] https://retail.economictimes.indiatimes.com/news/industry/indias-warehousing- market -after-gst-industry-perceptions/57270704 [4] https://www.beroeinc.com/whitepaper/GST-logistics-transportation-procurement/ [5] https://timesofindia.indiatimes.com/business/india-business/gst-triggers- consolidation-in-warehousing-industry/articleshow/60112189.cms http://www.iaeme.com/IJM/index.asp 114 editor@iaeme.com
Impact of Goods and Service Tax On Warehousing Industry In India [6] http://www.hindustantimes.com/business-news/gst-set-to-transform-face-of- indian-logistics-industry/story-cTGOm98qzkjCzCpj44QWyL.html [7] KDV Prasad and Rajesh Vaidya, Factors Influencing the Performance Appraisal System among Women and Men: A Comparative Analysis using Multinomial Logistic Regression Approach. International Journal of Management, 7(6), 2016, pp. 111–115. [8] Gurveen Kaur, GST in India – A significant Tax Amendment. International Journal of Management, 8 (3), 2017, pp. 53–62. [9] http://www.business-standard.com/article/economy-policy/gst-unveiled- warehousing-industry-to-see-reorganisation-117052400069_1.html http://www.iaeme.com/IJM/index.asp 115 editor@iaeme.com