GST - KEEPING IT SIMPLE!

By Ruma Dubey

GST will come soon, one day for sure! Online retailing is the “next big thing” in India. Put both of these together and what do you get? Surely, logistic companies are set for some boom times ahead. Stocks like Gati, AllCargo, Snowman, Gateway Distriparks, Container Corp and the entire pack is already soaring. Indeed they are looking at much better times, beyond being just oil containers. This universal, nationwide tax is expected to be much easy, lower and will ensure faster movement of goods and inventories, which in turn will mean more business for logistics companies.

There is as such tremendous activity in the sector with most companies ramping up capacities, scouting around for PE funding and strategic investors to take advantage of this tax, which is expected to start, maybe from 1^st April 2017. The biggest game changer will be that this plethora of taxes will be gone – excise, VAT, service, central; all will now come under one single umbrella of GST and that is indeed a lot of simplification. Some 17 indirect taxes will go and one GST will come. An 17-18% uniform tax, one nation-one tax is what is likely to come through. And the distribution of this 18% between the state and the Center will also be equitable. Suppose the GST for a product in 18%, the state and the Center will get 9% each.

So when it comes to a State, all taxes – VAT, sales tax, entertainment tax, local tax, tax on interstate sales, purchase tax, octroy, mandi tax, luxury tax, tax on lottery ;all will come under the single State GST.

And when it comes to Center, all taxes – central excise, additional excise, additional customs, special additional customs, countervailing duty, service tax, cess and surcharges; all will come under the Central GST.

The current debate, which requires the amendment of the Constitution is needed because brining in GST would mean that states are getting empowered to collect service tax, which otherwise is a prerogative of the center only.

What happens when the GST gets passed in the Rajya Sabha? 50% of the state assemblies have to then approve. Three legislations need approval – State GST by the states, Central GST and Integrated GST by Parliament. And of course, apart from all these legal and parliamentary approvals, the infrastructure also needs to be in place. The first big step in that direction will be putting up the huge IT infra – Goods and Service Tax Network (GSTN); this Govt organization is in place since 2013and has already invited bids from TCS, Infosys and Microsoft to build this infra.

On the ground, there will be a bevy of activity. For India Inc, already major bigwigs from abroad, like Japan's NYK , Nippon Express, Europe's FM Logistics, Rhenus Logistics, Panalpina and Damco which have started talking to companies to get into a formal tie-up. We could surely IPOs from TVS Logistcis and Mahindra Logistics.

When we talk about logistics infrastructure, we actually mean three things –

1: Transportation – includes road, rail air, sea, express, cold chain and project logistics.

2: Storage – includes godowns, warehouses, ports, container freight centers, logistics parks, inland container depots.

3: Services – includes freight forwarding, Third and Fourth Party Logistics (3PL / 4PL), courier services.

And as per those in the industry, over the next few months, we could see the biggest investments coming into express logistics, cold chain, modern warehousing, logistic parks, ports and 3PL/4PL. These are the areas where one should keep an eye out for news about some foreign fund picking up stake or strategic tie-ups.

When we talk about an overhaul in the entire sector due to GST, what exactly are we talking about? Or from a more specific market point of view, why exactly is the market so gung-ho about GST?  It is about more expansions and investments coming into the sector but there are quite a few others too who will stand to gain.  Logistics companies is a given but then there are others too who are basking in this “GST” glory.

Auto sector is expected to be a big gainer as duties under GST are expected to bring down the duty by almost half – from around 42% to 20-24%. In fact the auto sector will end up being the biggest beneficiary of GST.  Specifically in this sector, M&M, with its profile of multi vehicles – right from sports to tractors, would stand to gain the most.

Naturally, the retail sector will be a big gainer not just due to increased demand on account of fast transport and better logistics, but also due to overall tax rates coming down. Not to mention the big benefits of e-commerce which these companies will be reaping. Roll out of GST will also be a big leveler as it will now be able to bring India’s burgeoning unorganized sector into the tax gambit, probably for the first time ever. This will mean that those facing the stiffest competition from the unorganized sector – tiles, garments, beverages, FMCGs, footwear, leather, plywood, paints, adhesives, consumer durables sectors; all give again an advantage finally. It will mean though that the small scale unorganized sector will run through some tough times, with the biggies gaining more advantage over the smaller ones.

The cement sector will also gain as its current tax of 27-28% tax will become 18% (assuming that’s the rate) and Ultratech, which has the most cost efficient plant will benefit the most. The Direct-to-home companies like Dish TV will also gain as their tax will come down from the current 22-23%.

And yes, the big losers will be alcohol, tobacco and petroleum companies. Also companies in gold could see a negative impact as the GST rate on precious metals could be higher at 2-6%; so depends at what rate Titan Inds, Thangamayil, TBZ and the likes purchase gold – the rate of buying gold will decide the rate of GST. Your Dominos and McDonalds could get expensive as service tax for this sector could go up post GST.

GST is indeed a game changer. Yes, there will be short term inflationary pressures but for the longer progress of the country, we should be able to bear this pain. Probably we needed something like GST to overhaul our logistic infrastructure facilities. It’s a long uphill climb but at least we have begun the hike.