Will the GST turn India into Asia’s next logistics powerhouse?

India road expansion

India’s parliament has passed the Goods and Services Tax (GST) bill, which aims to reduce India’s complex tax system down to a single rate, reducing costs significantly for shipping goods across state borders.

At present taxes vary from state to state and foster protectionism, but the simplification of the system will remove taxes at domestic state borders, and replace them with single rate that will apply to most goods. Estimates suggest that India’s logistics sector, which accounts for nearly 14% of the country’s GDP, could see savings to the tune of $200bn annually.

Implementation of these tax reforms may have a major knock-on effect for Indian supply chains, and may usher in centralised distribution strategies for larger entities. The present system encourages smaller warehouses to be located in each state in order to avoid inter-state taxes, certainly sub-optimal in terms of operational efficiency. The introduction of GST should lead to fewer but larger warehouses, encouraging the development of modern facilities and reducing the share of the unorganised sector.

Source: Transport Intelligence

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