Impact of GST on Transport Services | H&R Block | Blog
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Impact of GST on Transportation

impact of gst on transport services

The introduction of GST has primarily had a positive effect in the transport sector, as it has helped speed up the movement of consignments via road, rail, air and sea. The sector has witnessed a 20% increase in efficiency due to the dismantling of checkpoints and the addition of the e-way bill has also greatly helped reduce the burden on drivers from enduring the procedures at checkpoints.

Pre GST, each state had levied different tax rates on goods passing through. Post GST, the rates applicable were unilateral through the states, however, in cases of multimodal transport, the situation can be further improved by having one GST rate on all multimodal transport, which would help reduce the burden felt by both the manufacturer and the transporters.

Benefits of GST on Transport Services

  1. Simplified Tax – The implementation of taxes removed 15 different state and federal taxes and tariffs. This removal of various rates of taxes eliminated the complexity in the transportation of goods and the cascading effect of indirect taxes.
  2. Warehouse/Logistics Costs Reduced – The previous tax structure led to higher logistics costs, which has been reduced by over 20% since the implementation of GST. Additionally, since each state had a different tax slab rate previously, companies housed warehouses in various states, instead of at strategic points, which led to increased warehouse costs. By removing multiple warehouses, logistics is improved, and optimization in the supply chain.
  3. More Efficient – One central tax rate makes for seamless transportation across the country through all the states, with the removal of multiple checkpoints, entry permits, complicated paperwork etc. By removing the complexities in transporting through the states, it reduces transportation time, operational costs and more efficient logistics.
  4. Technology Driven – In addition to GST being technology driven, the e-way bill has helped the players in the industry remove the confusion by creating uniformity in the industry. The consensus among the industry is that GST has improved things for the better, but as this is only the beginning, the real benefits are yet to be realized.

Rates of GST on Different Modes of Transport

  1. RoadwaysTransportation of goods by road are subject to GST of 5% or 12% with ITC availability subject to conditions.
  2. Airways – Transport of goods is taxed at 18% for within India, out of India and into India with input tax credit available.
  3. Railways – As per the recent amendment, transport of goods via Indian railways is taxed at 5% with the availability of ITC, which makes rail transport competitive with road transport. For transport via railways other than Indian railways, GST is charged at 12% with the availability of input tax credit.
  4. Waterways – The new rate of GST on movement of goods by waterways is 5% with the availability of ITC.

Multimodal Transport

What is Multimodal Transport?

Multimodal transport is the process of goods being transferred between locations using more than one method of transportation, such as road and rail. For example, the first step in multi-modal transport begins when the consignment leaves the warehouse by road and reaches its next transport destination either by rail, within the country or in cases of exports by air or sea. From here the final leg of the transport may go by road to reach the market for consumption. So, if a supplier is transferring goods, he/she does not have to own all the methods of transport. They can use an intermediary, known as a multimodal transporter, who takes up the responsibility of ensuring the goods are delivered utilizing more than one means of transport.

Impact of GST on Multimodal Transport

Since the implementation of GST, the government has committed to developing multi-modal logistics parks, such as the one undertaken in Varanasi, that will serve as a gateway connecting North to East with terminals for waterway, rail and road, with storage and warehouse facilities as well. As mentioned, GST has improved logistics furthered aided by the introduction of the e-way bill. However, as the industry is only just beginning to see the benefits, more can be done, especially for multimodal transportation.

The automotive industry, specifically, has requested for a single rate of GST as the present scenario applies various GST rates. By having one single rate, it would make for seamless transaction from the factory to end consumer. Moreover, in the present system, in cases of multimodal transport, the rules and various rates for the different modes of transport, allows for interpretation of various players such as consultants or tax experts, leading to confusion. The implementation of GST has organized this unorganized structure, which is in its next stage of becoming more organized by creating a more effective multimodal transportation, which will reduce logistics costs and improve imports and exports in the country, enabling global competitiveness.

Note: Multimodal transport of goods will be charged at the rate of 12% with full ITC under forward charge vide notification no. 13/2018- Central Tax dated 26.07.2018.

The implementation of GST in the transport sector has been primarily positive, which is due to improve over time. As compliance increases in the industry and efficiency optimized, India has a chance to compete globally with decreased logistics costs. To ensure your business meets all GST compliance and reconciliation needs, enlist the aid of the GST experts at H&R Block India.

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CA Ankita Mathur
CA Ankita Mathur
Ankita, a Big 4 alumna, is a tax expert at H&R Block (India) with vast experience in managing GST-related business services. An avid traveller, Ankita is a regular contributor to the CAclubindia and loves helping people understand about GST and helping companies be GST compliant.