“The Government must realize that logistics is not a ‘sin activity’ and must not be taxed in such a prohibitive manner. Logistics is the backbone of any economy. It should be treated as an infrastructural activity. While we have gained the much needed infrastructure status, the road to progress is yet far,” feels Legal Advocate Rajesh Kumar…
Logistics is regarded as the backbone of the economy as it ensures efficient and cost-effective flow of goods and every commercial sector depends on it. Logistics industry in India is evolving rapidly. It is the interplay of infrastructure, technology and new types of service providers, which determines whether the logistics industry will be able to help its customers reduce their costs and provide efficient services. Despite the weak response, the logistics industry continues to witness growth owing to the progress in retail, e-commerce and manufacturing sectors. The recent Indian logistics sector comprises of inbound and outbound segments of the manufacturing and service supply chains. Of late, the logistics infrastructure has gained the much needed boost from business houses as well as policy makers. Managing the infrastructure to effectively compete with other industries has not been given its due emphasis. Inadequate logistics infrastructure can create bottlenecks in the growth of an economy. The logistics firms are moving from a traditional set-up to the integration of IT and Technology to their operations to reduce the costs incurred and to meet the service demands. The growth of the Indian logistics sector depends much upon its soft infrastructure like education, training and policy framework as much as the hard infrastructure. To support India’s fast-paced economy growth, logistics industry is very essential. It is estimated that the industry will continue to grow at a robust rate of 10-15 per cent annually.
There exist several challenges and opportunities for the sector in the Indian economy. The biggest challenge faced by the industry today is poor integration of transport networks, information technology and warehouse & distribution facilities. Regulations existing at different tiers are imposed by national, regional and local authorities. However, the regulations differ from city to city, hindering the creation of national networks. Trained manpower is essential for the third-party logistics sector and the manufacturing and retailing sectors. It is lacking at the IT, driving and warehouse as well as at the higher strategic level. The sector is in a disorganized state in India. The general perception of logistics being a manpower-driven industry and lack of adequate training institutions have created a crisis of skilled management and client service personnel. Poor facilities and management are reasons behind high level of loss, damage of stock, mainly in the perishable sector. Though practitioners and academicians are slowly becoming aware of the importance of logistics and supply chain the field is still not adequately explored as far as research is concerned. It is essential to prioritize research and development so that the weakness in the industry can be taken care of and improved. These problems still stay of little importance for the logistics sector.
A major problem and challenge faced by the logistics sector is the problem of taxation. Logistics has always faced step-motherly treatment from tax authorities. The cost of providing logistics services is high because of numerous taxes imposed by the Governments. Fuel makes up almost 50% of the cost of transportation on which prohibitive taxes are imposed. Currently the government (centre plus states) is collecting around 100% taxes (Excise Duty and VAT) on the base price of petrol. Today, diesel attracts almost 66% of Central Excise duty and VAT. Further input tax credit of these taxes is not available as fuels have not been brought in the GST ambit. Therefore, taxes paid on fuels directly enter into the cost structure of logistics.
The Indian automobile industry has historically been one of the highest taxed sectors from an indirect tax perspective. Automobile is treated as sin goods under GST and attract compensation cess. Effective rate on automobiles are anywhere in the range of 45-55%. Further, there is input tax credit restrictions on GST paid on automobiles. Such a taxation structure is not conducive to improvement in the logistics sector. The Government must realize that logistics is not a ‘sin activity’ and is must not be taxed in such a prohibitive manner. Logistics is the backbone of any economy. It should be treated as an infrastructural activity. On one hand, we feel that logistics is the lifeline of an economy and on the other hand, we tax everything related to logistics at a prohibitive rate. This amounts to mere a lip service to the logistics sector.
The movement of goods under GST regime is governed through E-Way bills. It has been a great step in improving efficiency and reducing cost of transportation services. It is seen that movement of goods and smoothened and idle time of vehicles has reduced considerably. Still, numerous check posts have been created by various state governments to physically verify the goods. Goods and vehicles are being seized for minor typographical errors and huge penalties are being imposed, even on transporters. Aptly said, law can be changed overnight but it takes time before mindset is changed.
Though improvement is perceptible in logistics sector, both in efficiency and cost effectiveness, many other steps are required to be taken. Firstly, logistics sector must be spared of prohibitive tax rates. Further, Input Tax Credit must be allowed on fuel and vehicles under GST regime to eliminate the cascading effect of taxes. Finally, taxmen must be trained not to create undue hindrance in the movement of goods.