GST: changing cumbersome practice

The Indian and international business communities including Deutsche Post DHL Group have welcomed the passage of Goods and Services Tax (GST) bill by Rajya Sabha, or Upper House of parliament, on August 3, 2016.

The GST will most likely be implemented from April 2017, replacing over 30 different state and federal taxes.

The Bill has also been approved by the lower house of Parliament, or Lok Sabha, and would also need approval from state legislatures of the 29 states that comprise the Union of India.

Pritam Banerjee, Senior Director for Corporate Public Policy, Deutsche Post DHL Group, pens his views on the implementation of GST, and its impact for India’s supply chain and logistics sectors.

India is one of the world’s largest consumer markets with a 1.3 billion population, and has emerged as the world’s fastest-growing major economy in recent years. Rising incomes is driving consumption growth, and the India growth story is largely seen as one propelled by domestic demand.

But trading across India’s 29 different states remains a challenge. The procedures around the country’s tax system have been one of the biggest challenges in cross-border trucking of goods.

Indian businesses lose around US$21 billion a year due to inefficiencies and delays in cross-border transportation of goods, according to a recent report by Transport Corporation of India and the Indian Institute of Management, Kolkata.

The implementation of GST-related reforms is expected to change this cumbersome practice and enhance ease of doing business formalities in India.

India is already in the midst of massive investments in logistics hubs of international standards with IT-managed warehouses for domestic distributions, imports and exports.

DHL is among the leading participants in these developments, with an ever-growing fleet of trucks managing its supply chain network.

It also has a containerized rail-network on the anvil.

The implementation of GST is expected to provide a further impetus to these developments in logistics.

It took 16 years of political debates and finally reached a consensus on GST bill on August 3, 2016. But now is the bigger challenge of working out finer details for each segment of the economy to implement the long overdue GST.

It will be a challenging task to meet the April 2017 deadline set by parliamentarians in the GST bill. Time is short and as such it would be good to allow flexibility of timing.

The transportation and logistics sectors, the most basic and lifeline of the economy, would require detailed rule-making procedures, supported by a strong IT-based systemic solutions.

As at the time of writing these thoughts, the rules for transport-related documentation and administrative procedures for checking and inspection of trucks have received relatively scant attention. Focus was on reaching a consensus in politically-biased debates.

Urgent need for simplification

One major reform would be to replace 29 separate state-based systems with a single national online system, making it much simpler for businesses and their logistics service providers to record their transactions and movements of goods.

Requiring a strong IT Network

The GST Network (GSTN) will need a strong IT architecture with adequate server capacity if it is to serve as the online repository of all transactions and movement of goods in a vast economy like India.

A critical ask from industry would be for the GSTN to develop simple and transparent documents that would help in due diligence and post-audits, replacing the bundles of paper documents with a single e-invoice that business can use to record their transactions. The biggest challenge would be to convince all the 29 states to eliminate border check-posts.

Greater checks and balances

India’s notorious state border check-posts could potentially be replaced by random inspections by officers. However, it would be “very challenging” when truck operators and drivers face the officers who would enforce such random checks. These officers have been given substantive powers for stoppage and seizure of vehicles under the GST law, and such over-riding powers could lead to some instances of misuse.

IT Systems could potentially help ensure that any potentially biased behaviour by officers can be checked, and all official procedures made more transparent.

One way to achieve this would be the provision of Hand-held devices to all inspecting officers that would give them access to all documentation and information filed online by businesses. This would ensure that transporters would not need to carry reams of official paperwork with them.

Another critical transparency measure could be in the form of mandatory digital camera surveillance of physical inspections carried out by officials with location and time of stoppage and verification being automatically logged into the system. Such recordings would also help settle any disputes in a transparent manner.

Such integrated and transparent systems would also reduce unlawful behaviour on the part of some business and transporters, and improve the overall business environment.

The challenges of implementing GST are substantive, and dismantling a six-decade old legacy of largely manual systems will not be easy. But this is a crucial reform to ensure India’s sustained growth into the future.