As a leading player of the Indian supply chain and logistics sector, we find the Union Budget 2009 praiseworthy. This Budget is fundamentally strong and has been designed keeping in mind the overall good of the economy and the people. Also, the government’s clear focus on economic resurgence and long-term growth is admirable.Some of the vital recommendations made by us on behalf of the supply chain and logistics sector to the government included increasing the thrust on infrastructure development, bringing in a uniform tax structure, providing industry status and setting up a single regulatory body for the entire sector, and creating more skilled manpower.
With respect to the varying tax structures across various states, we had requested the government to introduce a uniform tax structure across the country to simplify the government procedures with respect to movement of goods. The decision of introducing GST (Goods and Services Tax) from next year will help in propelling the growth of supply chain and logistics sector. GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.
The government plans to introduce dual GST structure in India. Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction. This dual structure will ensure a higher involvement from the states, and consequently their buy-in into the GST regime, thus facilitating smoother implementation.
Initially, there was some ambiguity with respect to the complete acceptance of the proposed GST regime by various states. However, slowly and gradually a consensus has been reached among the states analysis Impact of the on the planned rollout. Also, most of the states have principally agreed to have a common tax rate. The new GST structure will enable the streamlining of goods flow across the country under a single tax system, by abolishing the present multiple tax structure that includes central excise, state VAT and service tax. Under the GST system, both central and state taxes will be collected at the point of sale.
Both the tax components will be charged on the manufacturing cost. The government is deliberating on the value of combined GST rate at the moment, which is expected to be between 14-16 per cent. After the combined GST rate is decided, the centre and the states will finalise the CGST and SGST rates. All kinds of goods and services, barring some exceptions, would be under the GST purview.
It will invariably lead to an augmentation in tax collections and will annihilate tax barriers between various states and integrating the country through a uniform tax rate. The taxation load under the GST will be divided equitably between manufacturing and services, through a relatively lower tax rate by way of increasing the tax base and minimising the tax exemptions.
As per estimates, India will gain USD 15 billion a year by implementing the GST as it would augment exports, employment and development. The prices are bound to fall in the long run as dealers pass on the benefits of the reduced tax to consumers. Introduction of GST will enable the manufacturers to manage distribution centres across India at very few strategic locations.
At present, to save on Central Sales Tax (CST), manufacturers have to maintain warehouses at multiple locations to show the movement of goods from one warehouse to another. With implementation of GST and phasing out of CST by April 2010, manufacturers will readily outsource their warehousing requirements to the third party logistics service provider.
GST will lead to the abolition of numerous other taxes such as octroi, CST, entry tax, state-level sales tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services etc. This will help obliterate multiple layers of taxation that currently exist in the country.
Another initiative of providing tax benefits to companies investing either in warehousing for agricultural produce or in cold chain infrastructure is a welcome move. This will result in an exponential growth of warehousing business, as well as fuel the faster growth of the entire supply chain and logistics sector. The government has initiated a uniform service tax for all the modes of transportation in the supply chain sector.
Until now, the service tax was levied only on road and air cargo. However, railway and coastal cargo are also being brought under the service tax ambit. This would bring further uniformity in taxation across the entire supply chain and logistics sector. The structure of our economy has changed radically over the last with service sector now contributing over 50 per cent to India’s GDP.
It was expected that the government would increase the service tax in this budget. However, there has been no hike in service tax, which has been maintained at 10.3 per cent vis-à-vis 12.36 per cent in the previous year. Removal of FBT is a very good step, which will provide a fillip to our marketing activities.
This will lead to companies offering higher perks to their employees. Also, removal of surcharge on income tax will result into an increase of up to five per cent in the income of salaried employees giving them a big reason to cheer. For India Inc to grow at the rate of nine per cent, supply chain and logistics sector will need to contribute the maximum, otherwise growth can’t be achieved at those levels.
The roadmap provided by government is very promising for the sector and going forward, the sector will keep playing a pivotal role in the overall growth and development of our economy.
