The Indian GST Tax Reform of 2017

How has it affected the economy?

Since India implemented its tax reform on 1 July 2017, GDP growth has been around 7% in Q4 2017 and Q1 2018. This has mainly been led by robust consumer demand manifested most evidently in rising automobile sales, representative of buoyancy in urban and rural spending. Signs are also good on the agriculture side. Forecast for the fiscal year 2018/19 is 7.5% GDP growth.

India in the Spotlight

According to the most recent report from PwC, Indian GDP will surpass US GDP in purchasing power by 2040 – if not before. All countries will have to consider doing business with what is expected to be one of the world’s largest economies – in part thanks to the new tax reform, introducing a uniform nationwide Goods and Services Tax (GST). With the uniform GST having "gone live” a year ago in 2017, tax reform has become quite the hot topic. Never in the history of India has tax reform been such a global subject. Previously, India operated with multiple layers of state and centrally administered indirect taxes –the Indian nation being made up of a federation of states with independent governments.

A uniform tax structure makes business easier

The new tax structure is a game-changer for the economy as well as for many businesses. The primary objective is to do away with state boundaries, spur growth and stimulate investment as well as increase compliance and efficiency. Most importantly, it is intended to make investing in and doing business with India easier than ever before.

The nationwide GST has replaced India's “jungle” of almost half a dozen indirect taxes, duties and surcharges. The new structure is a dual-GST, similar to that of Canada and Brazil, but with one unique feature:

Every business has to upload itemised invoices for both its purchases (costs) and sales (revenue). Consequently, every business-to-business invoice will be cross-matched, resulting in full compliance and greater efficiency across industries. This also brings greater transparency and places all commercial transactions on an “auto-scan” mode.

With this setup, every business will be rated based on its own compliance as well as its customers’ and vendors’ compliance. This, in turn, ensures that businesses actively seek compliant and efficient partners. Survival in the long run will depend on compliance ratings, and creditworthiness will be more easily determined.

In short, the introduction of GST in India is one of the world's most complex tax reforms complete with state-of-the-art technology servicing at least 7.5 million businesses in a nation of over 1.3 billion people.

Four different GST rates

Given the size and diversity of the country and the federal nature of the republic, there are now four different rates that apply to goods.

As expected, services are charged at the 18% rate.

The new regime will fast-track logistics development

For the Indian logistics industry, the benefits are obvious: Goods moving across the country no longer have to contend with state borders, check-posts, octroi and a bundle of documentation, which will pave the way for more efficient and faster cross-state movement of goods with fewer documents.

It is expected that previously inefficient and long supply chains with warehouses situated in multiple states may be consolidated into fewer but larger warehouses at strategic locations, thus creating more efficient supply chains.

After the implementation of the GST regime, the 3PL (third party) logistics market in India is expected to be worth over US$300 billion by 2020 and growing at a double-digit CAGR (growth rate).

Introduction of E Way bill:

At its 22nd meeting held in October last year, the GST Council decided that the e-way bill under GST would be rolled out nationwide from 1 April 2018. This was good news for businesses across the country, as they got more time to get acclimatised to the various changes brought in by the GST era. It is expected that over the coming 12 months, this will have a huge impact on the logistics industry, and that the whole transport sector will get a robust governance model.

E Way Bill in summary:

E Way Bill General Rule

Registered person causes movement of goods value > INR 50,000 (EUR 635), or inward supply from unregistered person:

  • Before movement of goods
  • Furnish information in Part A of GST EWB-01 on common portal
Special Cases

Any interstate movement irrespective of value:

  • Any goods, from Principal to Job Worker
  • Handicraft goods from person exempted from registration
Who is liable to generate
Registered Person, Transporter, Principal / Registered Job Worker or Person exempted from registration on case to case basis

Furnishing information on behalf of Registered person / Consignor 

Part A of GST EWB-01 can be filled, on an authorisation:

  • From: Registered Person, By: Transporter
  • From: Consignor , By: E Commerce operator
For whom it is optional
Unregistered person until they are covered under special cases
From where to generate, Android App, SMS, ASP Integration with web portal, using GST Suvidha Provider
Which form

EWB 01, which contains two parts:

Part A – Details of goods moved
Part B – Detail of vehicle

  • After filling Part A unique number gets generated.
  • Only after filling Part A and Part B both, E Way Bill no. (EBN) can be generated
Validity of E Way Bill

Normal Cargo: 1 Day for first 100 Km thereafter for every 100 Km or part thereof additional 1 day
Odd Dimension Cargo: 1 Day for first 20 Km thereafter for every 20 Km or part thereof additional 1 day
Each day shall be counted as the period expiring at midnight of the day immediately following the date of generation of e-way bill. CAUTION: This means that an e-way bill can expire before your shipment is delivered!


Documents Required to generate E Way Bill

  • Invoice / Bill of Supply / Delivery Challan for consignment of goods
  • Transport by road through transporter : Transporter ID or Vehicle number
  • Transport by road through owned / hired vehicle : Vehicle number

Looking forward to economies of scale

Local (road) transport costs are expected to come down over the coming years, not least due to fewer stops and delays, and bring in scale to logistics companies. This could very well lead to larger trucks and fewer vehicles as a result of various industry segments adopting the hub-and-spoke model in the post-GST era.

The ease of moving goods across state borders, and the resulting economies of scale for transport operators, will compel more companies to outsource their logistics operations to optimise their own costs in a highly competitive market.

Bringing a better business and working environment

With the growth in GDP seen, the introduction of GST has clearly ushered in a better business environment and created a platform for higher economic growth.

The manufacturing sector, in particular, will benefit from tax credits, which were not available in the past, amidst other logistical cost efficiencies. Since this sector creates customers for the logistics industry, it could accelerate growth for the logistics sector too.

The hi-tech tax reform will also create a competitive advantage for the organised MNC industry players who bear the brunt of unethical practices adopted by local, smaller unorganised sector players in the present tax regime.

In the warehousing/contract logistics segment, a new era is expected to dawn: supply chains will be re-engineered and revamped; road transportation routes will be re-mapped; services will be consolidated; warehouses will see greater degree of automation and robotics; and organisations with highly skilled and technically superior workforce will thrive.

About the author

Sandeep Tatke is the Regional CFO for the Indian Subcontinent at DSV. He has 20 years of extensive experience having worked in Deloitte, ABN AMRO Bank, FedEx and most recently as Director Finance in Nielsen based in India. He has held leadership positions and been involved in every aspect of the business, partnering sustainable growth for years.
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