Budget expectations: Logistics sector

31 Jan 2022 , 01:14 PM

The Union Budget 2022, scheduled for 1st February 2022, is an even that the logistics sector is looking forward to, so as to get some respite from critical pain points currently plaguing the industry. A few amendments in existing policies could propel the industry which is already showing signs of recovery post the pandemic. The Indian logistics industry contributes significantly to the economy as it is unarguably one of the key sectors attracting foreign investments and generating employment. As the Union Budget 2022 draws closer, we have compiled a list of measures pertaining to GST and policy amendments that we believe would boost the sector.

A. Tax reforms

I. ‘Export Service’ for Air/sea export freight

The existing policies have exempted air/sea export freight from GST till September 2022. If the recipient of the export freight is located outside India, the air/sea freight is considered an export of service. At the same time, the air/sea freight is exempted from GST if the recipient is within India. That means ITC (input tax credit) cannot be claimed on such service resulting in significant ITC loss for logistics companies. We believe that considering all air/sea export freight as export of service irrespective of the location of the recipient would be a welcome step.

II. Grievance mechanism for Assessees

Assessees are required to bear the GST charges levied by vendors. But in some instances, the vendors fail to pay the amount for no fault of assessees which means the assessees have to bear the losses. There are no measures in place to address such issues faced by Assessees. Including provisions in GST to assist assessees faced with such issues would certainly be a breather for the logistics industry. An effective grievance redressal mechanism is the need of the hour for smooth functioning of logistics companies.

III. Limited state audits for each assessee

Assessees now have to undergo multiple state audits which has proved cumbersome for several logistics companies. Not all companies are armed with enough staff at all locations. The audits coupled with filing of statewise returns has added to the burden and logistics companies are reeling under the pressure of compliance. It would be immensely helpful if the government considers limiting the number of state audits for each assessee in a given year in the upcoming budget.

B. Policy amendments and budget allocations

1. Focus on road and infra development

A robust infrastructure is central for a thriving and efficient logistics sector. The government must increase budget allocation for road and infrastructure development. Demand for on-spot transportation services is on the rise and a good infrastructure is key to facilitate speedy delivery of goods.

2. Logistics parks

The industry wants the budget to focus on strengthening the sector by building logistic parks. Provisions can be made to create dedicated zones for logistics parks with adequate infrastructure and connectivity at district levels. The government must also encourage housing projects and hassle-free commuting within the vicinity of logistics parks so logistics companies can benefit from local talent and attract managerial resources.

3. Electric vehicles for cargo transport

The logistics industry is responsible for carbon footprint to a certain extent and the government can take steps to encourage the use of electric vehicles for cargo transportation. Initiatives can be introduced around the use of transport vehicles below 1 tonne capacity. It’s certainly a win-win situation as it reduces cost along with minimizing the harsh impacts of pollution on the environment. Concessions for installation of EV infrastructure such as charging stations can expedite use of electric vehicles for commercial purposes thereby resolving last mile delivery problems.

In addition to the policies and measures discussed above, the government also needs to address pressing issues like rising fuel cost and increasing tax compliance requirements. The rising fuel cost is one of the biggest deterrents to the sector’s growth. India’s logistics cost stands at around 14% of GDP as opposed to 8-10% in developed countries. The government must aim for implementation of a uniform national policy to govern logistics operations.

In addition, different tax structures and compliance requirements lead to disparity and inefficiency in the sector. We expect that the upcoming budget would contain key measures to improve the logistics ecosystem and leapfrog India’s logistics ahead of other economies.

The author of this article is Mr. Cyrus Katgara, Managing Partner, Jeena & Co

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com