The goods and services tax (GST) that was expected to fast-track the formalization of the logistics sector is proving to be a rather gradual process. Mahindra Logistics Ltd recently told SBICAP Securities Ltd that GST has only led to a gradual shift from the unorganized to organized logistics, unlike the disruptive change that was expected initially. As goods transport agencies largely remained under the reverse charge mechanism (in which they do not have to register under GST and pay lower taxes) the shift towards organized sector was stymied, says Sandeep Mathew, an analyst at SBICAP Securities.
The scenario is expected to change as the government implements the e-way bill beginning next month. E-way bill is an electronic documentation aimed to track goods movement and prevent tax evasion under GST. Compliance is expected to benefit the organized logistics sector. But given the omissions and fragmented structure of the sector, implementation of the e-way bill in the current form may not spur a rapid transition in the short term, some fear.
Deepal Shah, chief executive officer (customs clearance and freight forwarding) at Avvashya CCI Logistics Pvt. Ltd, a subsidiary of Allcargo Logistics Ltd, says transport agencies (a segment in logistics sector) could slow down the transition, as they enjoy special taxation status and other exemptions. “With the current changes in e-way bill implementation, there have been a lot of exceptions in the eligibility criteria for an e-way bill requirement," adds Shah.
An analysis by Aseem Chawla, partner at Phoenix Legal, and his team, says that the e-way bill by itself may not fast-track the transition to the organized sector as the e-way bill requirement for the transporter is not linked with mandatory registration for transporters under the GST.
“Further, at present, there is no requirement to generate e-way bill where an individual consignment value is less than Rs50,000, even if the transporter is carrying goods of more than Rs50,000 in a single conveyance," said the study by Chawla and his team.
P.C. Sharma, CEO of TCI Express Ltd, reasons that the transition will take time as the industry was heavily dependent on the unorganized sector. Further, with the final form of the e-way bill yet to take shape, one should wait for changes, he adds.
Of course, the e-way bill is still evolving and is expected to be implemented in a phased manner. As the implementation gathers pace, the formalization of the logistics sector is expected to gain momentum. Some are already seeing the initial benefits in consolidation of warehouses and realignment of supply-chains.
But the need of the hour, as Sharma of TCI Express says, is proper implementation and a focused approach towards the reforms.
Shah of Avvashya CCI Logistics says compulsory registration under GST and implementation of the reverse charge mechanism in a phased manner can ensure better compliance and faster transition from unorganized to organized logistics. Overall, while GST still holds promise for the logistics sector, much depends on the implementation.