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International Journal of Management (IJM)
Volume 8, Issue 5, Sep–Oct 2017, pp. 111–115, Article ID: IJM_08_05_012
Available online at
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ISSN Print: 0976-6502 and ISSN Online: 0976-6510
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IMPACT OF GOODS AND SERVICE TAX ON
WAREHOUSING INDUSTRY IN INDIA
R. Swathi
Student, Saveetha School of Management, Chennai, India
Siranjeevi
Assistant professor, Saveetha School of Management, Chennai, India
ABSTRACT
Logistics sector plays a vital role in the development of our country. Indian logistics
industry has been showing a steady growth. Goods and Service Tax (GST) is India’s
greatest tax reform. In India, GST is implemented to unify the entire country into a
single market with only one value- added tax levy on all the goods and services across
states at the point of consumption, comprising up to 16 different taxes. The specific
objective of this article is to analyse the impact of Goods and Service Tax (GST) on
logistics and specifically on warehouses situated in India.
Key words: Goods and Service Tax (GST), Logistics, Warehouse.
Cite this Article: R. Swathi and Siranjeevi, Impact of Goods and Service Tax On
Warehousing Industry In India. International Journal of Management, 8 (5), 2017, pp.
111–115. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=8&IType=5
1. INTRODUCTION
Logistics is the management of movement of things between the point of origin and the point
of consumption in order to meet requirements of the clients. The logistics of physical items
usually involves the combination of information flow, material handling, production,
packaging, inventory, transportation, warehousing and often security.
Warehouses are part of a logistics management system. Although some describe it as
simply a place to store finished goods, packing of those goods and shipping them, it provide
important economic and service benefits to both the business and its customers. Operations
such as order consolidation, order assembly, product mixing and cross-docking that take place
within the warehouse structure adds value to the overall logistics system.
Under GST, the tax on warehouse, storage and other labour services has increased from
15% to 18%. Implementation of GST will free the decisions on warehousing from tax
considerations and decisions will be purely based on operational and logistics efficiency. This
will lead to change in dimensions for logistics requirements of the clients forcing logistics
R. Swathi and Siranjeevi
http://www.iaeme.com/IJM/index.asp 112 editor@iaeme.com
service providers to rethink their business operations including creating new warehousing and
logistics locations and expanding / closing existing warehouses at certain locations.
2. REVIEW OF LITERATURE
• A wave of consolidation is sweeping over the Rs 50,000-crore warehousing industry-GST
triggers consolidation in warehousing industry (Economic times August 18, 2017).
• A dozen new warehousing hubs are likely to emerge in the country in the wake of Goods and
Services Tax (GST) rollout in July-GST rollout to see emergence of 12 new warehousing
hubs(The Hindu business line May 3-2017).
• Warehouses will move to consumption-and-transportation network areas-GST unveiled
Warehousing industry to see reorganization (Business standard May 30, 2017).
• GST is India’s biggest tax reform-GST set to transform face of Indian logistics
industry(Hindustan times Jul 06, 2017)
• The passage of GST bill, when it happens, can spur large warehouse related investors by
logistics providers to derive cost savings from route and warehouse optimization (Business Line
July 3 2016-Transport Corporation of India: En route to growth).
• GST, a revolutionary tax reform that unifies India’s USD 2 trillion economy into a common
market with its simple and unified approach aims to immensely benefit the warehousing sector
in India-GST a positive impact on the warehousing sector in India(Industry news digest Jul
07,2017)
• Logistics is one tricky sector that is surely going to benefit once the Good and Service Tax
(GST) gets rolled out from July 1. However the results won't be too quick-Here's how GST is
going to be ‘legendary’ for logistic industry in India(Business Insiders MAY 26, 2017)
3. OBJECTIVES OF THE STUDY
• To analyse the impact of GST on Logistics Industry especially on Warehouses.
• To present the advantages to Logistics Industry in India after GST implementation.
4. METHODOLOGY OF THE STUDY
Being an explanatory research, the research methodology is based on secondary data that
comprises research articles of the experts from journals, newspaper and magazines.
5. BEFORE THE IMPLEMENTATION OF GST
All the 29 states of India taxes goods that move across their borders at various rates. As a result,
cargo that moves across the nation is taxed multiple times. Before GST, companies rented
warehouses in every state because each state would impose its own tax Different taxes like
octroi tax, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees,
turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods has to
be paid. Thus during the process of entire supply chain multiple layer of taxation is done.
6. IMPACT OF GST ON WAREHOUSING INDUSTRY:
The following are the change that has taken place in the warehousing industry after the
implementation of GST in India.
7. REDUCTION IN THE NUMBER OF WAREHOUSES
The locality of warehouse is mostly chosen to minimize the cost of delivery for both the
company and the customer. Usually companies operate with multiple warehouse strategy. They
have different warehouses at different state in order to avoid interstate taxes while transporting
from one location to the other.
Impact of Goods and Service Tax On Warehousing Industry In India
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The demand for logistics and warehousing was mainly concentrated in Bangalore (24
percent), Delhi-NCR (21 percent) and Chennai (20 percent) representing that the southern cities
led demand during the review period. Mumbai with a contribute to 13 percent was the only
other city to witness ample transaction activity. Except for Kolkata, and Pune, all other cities
recorded an raise in absorption of space during the period.
With the implementation of GST the decision of warehousing will now be based on the
handiness of labour and customer not on CST and VAT rates.The local state taxes are
eliminated and there will be only one goods and service tax across the entire nation. This enables
the companies to achieve cost efficiency in their operations and thus transferring this cost
benefit to the end consumer in the supply chain.
Thus Companies would have one big consolidated warehouse at a central location which
might serve multiple states leading to decrease in the number of warehouses. Instead,
companies may choose for warehouses at specific locations on the basis of hub and spoke
model. Hence GST will have a direct impact on the total count of warehouses in a supply chain.
Before GST implementation, a firm stocks 5 units of product A in 10 small warehouses,
after GST implementation the same firm would stock 25-30 units of the same product A in one
extra-large warehouse, without compromising order completion efficiency.
8. LOGISTICS TIME
On report of entry taxes and heavy paper work at state check posts, there is an extra 5-7 hours
added to the transport time for inter-state transport of goods. Over the time there will be a move
towards a 'hub and spoke' model in which less but bigger trucks will move between bigger
warehouses. In addition, flow of goods is expected to get better with reduction in turnaround
time as VAT related check posts will be removed. It may lead to 15-20 per cent decrease in the
truck stoppage time. This will also lead to faster and increase in the number of deliveries.
Abolishment of both the entry tax and easier tax compliance actions is likely result in easier
movement of goods across the country.
9. TECHNOLOGY IMPLEMENTATION
As mentioned earlier, consolidated warehouses would be bigger in size for accommodating
more inventory at a central location, these warehouses would definitely benefit from
technological superiority by implementing state-of-the-art planning and warehousing systems
which are not possible in smaller and distributed warehouses. There would be indirect impact
of GST on warehousing in India, as cost of IT for deploying ERP systems at smaller
warehousing locations would be eradicated. It makes partial or full mechanization with
latest Warehouse Management Systems (WMS) and modern robotics, reasonably feasible for
extra-large warehouse hubs. Analysts also predict that it will guarantee better-quality service
levels at lower cost in overall supply chain.
10. COST BENEFITS
There will be less number of tolls and check posts and full credit will be available on interstate
businesses. So, businesses will overall have Cost benefits after the effect of GST. The move to
reduce total number of warehouses in favour of operating out of a few strategically-located ones
will help companies streamline distribution and save costs. After the application of GST, E-
commerce, consumer electronics, automotives, pharmaceuticals and FMCG players will own
or lease larger warehouses at major locations such as Mumbai, Delhi, Ahmedabad, Chennai,
Bengaluru etc.
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Thus there is an estimated growth of around 18 % in warehousing until 2017, which will be
above 20% in the coming years with GST’s implementation. Warehousing industry is bound to
get more organized and overall profits are there to be gained.
11. MORE ORGANIZED WAREHOUSES
Warehousing industry will sense the impact of GST as the need to build warehouse in each state
will be almost over and this will lead to better organized warehouses and ultimately it will
enhancing the overall efficiency. Otherwise, it would have been complicated when those
warehouses are sustained by 20-30 Clearing and forwarding agents leading to complexity in
supply chain and causing inefficiency.
12. INVENTORY CONTROL AND DEMAND FORECASTING
Number of warehouses leads to complicated warehousing decisions like setting up of huge
inventory and at times running out of inventory when demand rises suddenly. GST would have
a huge impact on inventory efficiency as there would be lesser stocking points and case of stock
outs would also be fewer. This will all be due to businesses taking benefit of economies of scale
and making better prediction for the upcoming demand, thereby guaranteeing that supply chain
process is up and running. Surely, this will lead to a positive influence of GST on warehousing
in India.
13. INCREASE IN THIRD PARTY LOGISTICS
The third party logistics will rise after the implementation of the GST. Its market under the
warehousing sector in India is predictable to be value of $301.89 Billion by 2020.
14. CONCLUSION
GST is a win-win solution for all the stakeholders. It is a significant aid for increased prosperity.
GST could lessen transportation cycle times, enhance supply chain decisions, lead to
consolidation of warehouses etc. which could help logistics reach its potential in terms of
service and growth. So it will be great bang for the logistics sector which is leading to
accelerated economic growth. We can conclude that it is in the favour of warehouse industry to
introduced GST, so that warehouses will enjoy the benefit of it.
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