The Impact of GST on Indian Warehouses

With the roll out of GST (Goods and Service Tax) all over the country from July 1, 2017, the much needed call for a uniform taxation system in the country was answered in emphatic fashion. Unifying all the taxes under one umbrella, GST has created a single market for taxes and is having far reaching impacts on various industries. One of the sectors which is poised to benefit majorly from the roll out is none other than logistics. Every warehouse in India earlier was reeling with inefficiency, operational incumbency, and the brunt of hugely complex and cumbersome taxes. 

With GST, the warehouses have been spectacularly ‘unleashed’. While it will take some time for the benefits to emerge, the possibilities that GST presents to logistics and the warehousing sector are limitless. Let us shed some light on how GST will impact the warehousing sector in particular:

Decrease in the number of warehouses in the country

In order to avoid various state and transit taxes, companies used to build warehouses in different states of operation. This meant that every warehouse served independently of the other, and took care of the internal operations within the boundaries of that state. With GST, the state borders are scheduled to open up, thus lifting the barriers to transportation and the hassle of paying toll and other taxes. With such a freedom of movement for goods, there would be no need to set up a different warehouse for every state. In fact, this would lead to creation of larger primary warehouses at a central location serving all the states at once. With a deduction in the warehouses across the supply chain in India, the storage and operational costs would come down rapidly, and we would see lesser warehouses running below their maximum capacity. 

Heavy technological investment and implementation

With warehousing hubs emerging across the country, the need for better, more sophisticated technology would arise. While implementing state-of-the-art warehousing, inventory management, and supply chain systems was deemed non-profitable before due to the small size of scattered warehouses, such would not be a case in the large warehouses of the future. Such a hub would attract significant foreign investment, and be able to develop unprecedented supply line and planning systems, all the while taking down the cost of deploying systems such as the ERP at every smaller warehouse in the country.

Enhanced inventory control and demand forecasting

It is a known quantity in the logistics sector that the previous tax structure was nuisance to inventory and demand control in the warehouses. With rapid fluctuations in demand and supply, the inventory stocking mechanism would always fall short of what was required. GST’s implementation will solve this problem by reducing the number of stocking points due to lesser number of warehouses, and lesser cases of stock-outs due to larger warehouses. With better technology, demand forecasting would be much more accurate and precise, thereby keeping the supply chain in smooth motion.

Superior warehouse organization and management

Another direct consequence of the reduction in the number of warehouses due to the implementation of GST is a much advanced and efficiently organized warehousing structure. Earlier, the complication arose due to multiple warehouses in multiple states dealing with multiple clearing and forwarding agents. This was difficult to handle and the management was inefficient due to the sheer quantity of different metrics involved. GST is set to simplify everything by consolidating warehouses and taxes.

The implementation of cost benefits

GST will facilitate a shift from a tax-saving approach to an efficiency-conscious one for the companies involved in warehousing. With tax benefits to be claimed, accountability and regulation will be brought to the sector, especially warehouses which are still unorganized. Also, GST compliance ratings will enable the companies to derive even more tax benefits, thus ensuring the credibility of the whole operation. 

Warehousing and logistics account for 14% of India’s GDP expenses, and with GST, this number can be significantly brought down to the level of developed countries. With 20% growth being forecasted in warehousing after GST implementation, the future looks bright.