With GST’s Draft Compensation Law Cleared, Warehousing & Supply Chain Units Hope for Huge Benefits

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The Logistics Headlines, New Delhi, 21st Feb 2017: On February 18th, 2017, the Finance Minister of India, Arun Jaitley said that GST (Goods and Services Tax) Council has cleared the draft compensation law, which is one of the four enabling laws directed for GST constitutional amendment. The remaining drafts for GST (integrated GST and central GST) shall be passed on the Council soon in their next meeting scheduled for March 4 to 5, 2017 in Delhi.

The GST’s Compensation Law Amendments

GST’s compensation law indicated that in case a state suffers loss, it shall be covered for in the initial five years. Its first law is now formally passed from the council and other enabling laws will get approved as well. The new regime for tax will be rolled out from July, 2017 and each of the state legislatives will also pass the State GST.

Goods and Services Tax once employed is certain to reduce documentation for logistics companies, which will bring improvement in client outreach and turnaround time. As elimination of federal tax barriers will dawn, a common market creation will make supply chain more efficient, attracting better foreign direct investment (FDI).

As per Jasmine Singh, the head- industrial & logistics services of CBRE South Asia Pvt. Ltd, the GST will ease business in India with tax neutrality, irrespective of the location. Investment decision for warehousing shall not be dominated by comparative tax benefits of various states, but the decisions will solely depend on supply chain efficiencies.

The proposed law stipulations promise enhanced tax conformity, thus closing loopholes in current tax regime.

Positive Expectations for Warehousing and Supply Chain from the GST

A survey was conducted by CBRE to understand how warehousing players look at GST implementation- would it inspire a larger good for the logistics sector by inviting investment worthy assets and more, or otherwise?

  • More than 63% respondents felt that GST could be great for overall business operations of the country. Anticipations are high for consolidation of warehousing facilities, and expansion of footprints in major consumption centres.
  • Estimated 45% respondents said that warehousing operation costs will decline with GST, and 25% were of the opinion that it is too early to judge the actual impact.
  • In majority, respondents were prepared for GST and looking ahead to abide by the new regulation to align their businesses accordingly.
  • About 52 % of those surveyed told that they possess multiple warehousing facilities in one city/state, and 28 percent of those said that it was the best to operate with multiple local taxes involved.
  • 65% believe that at least 3 to 12 months will be taken to align business strategies as per the new tax structure. 38% of the companies surveyed though that it is a sound mode for operation relying on their current business model.
  • 11% of companies in the survey prefer to engage the hub with wish to approach the post-GST regime against the 6 percent of those who agreed now, indicating that post-GST scenario will see a sharp increase in the concept of mother warehousing hub for regions supplemented by spokes.

Singh added that GST will drive the focus of players to increase supply chain performance, which would give a rise in demand for better quality warehouses, thus offering ideal platforms for large scale nationwide players.

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