Doubts still surround the implementation of India’s proposed general sales tax regime.
By eliminating state-enforced cross-border taxes, analysts expect the new unified tax system to revolutionise domestic logistics and prompt a bout of consolidation in India’s fragmented transport sector, but its introduction has suffered a series of delays.
Originally scheduled for April, ministers admitted this week that the new April 2011 deadline might slip after state governments asked for more time to study the GST bill. The bill cannot now be tabled before the current session of parliament ends on 31 August. The introduction of GST would result in a “major evolution” in domestic logistics in India. By removing cross-border state taxes, the GST would allow logistics providers to build megawarehouse and logistics hubs designed to serve the entire country. “In terms of distribution, there [will be] a trend to move from the typical 9-tonne, 30cu metre unit to 20-tonne, 65cu metre trailers”. “This will facilitate increased efficiency in the supply chains of India.”
The current central sales tax system is levied on interstate sales of goods, which makes it financially judicious to hold separate inventories in each state, despite the inefficiencies and extra management and warehousing costs this loads into supply chains. Widespread tax concessions further skew the market. It often means that, after central and state taxes, goods that cross state borders are often subject to up to 30% tax by the time the product reaches the consumer.
Current supply chain structures in India were engineered to harness fiscal benefits arising from differences in tax structures across regions. The GST would allow transition from origin-based to destination-based taxation regime, encouraging the consolidation of the logistics sector and distribution networks, he added.
“Under the proposed taxation scenario, by using a network strategy, every distribution-intensive company has an opportunity to re-examine their supply chain structure. “Large-scale shared facilities with multiple users will set the platform for consolidation in the post- GST scenario. “GST will make large regional warehouses economically viable. Large, shared distribution centres offer not only strategic, operational and financial benefits, but allow for better cost control, forecasting, inventory rationalisation and synergies for consolidation.”
Source: Mike King, IFW News, 27 August 2010