If OEMs pass on benefits, freight costs may go down: Transporters

With the Goods and Services Tax (GST) Council rationalising rates on several key tenets in the logistics sector, including trucks, the industry expects cost savings if original equipment manufacturers (OEMs) pass on the benefits.

 

“The reduction in GST rates on trucks, tyres and insurance stands to reduce our cost of acquisition by about 10 per cent. We are hopeful that the OEMs will pass on the benefit to us,” said Pradeep Singal — chairman of All India Transporters Welfare Association.

 

According to Singal and several other truck operators, the road logistics sector is so competitive that passing on benefits is really quick.

 

“If OEMs pass on the benefit, we can expect a reduction in freight costs by around 1.5 per cent,” added Singal, who’s the managing director of GIR Logistics.

 

Moreover, the simplification of tax structures among various modes of transport will also bode well for the sector.

 

“For logistics, doing away with the 5, 12 and 18 per cent rates across segments will simplify the challenges of classification which the sector is plagued with. It would also take away any tax disparities between different segments/modes of transportation,” said Smita Bhandari, tax partner at EY India.

 

Businesses will have to adopt the rate (between 5 and 18 per cent) best suited to them.

 

It would depend on existing and planned capex investment, nature of business of customers as well as the current operational structure of delivery of logistics services, she added.

 

According to another truck operator and a senior official of a transporters’ association, input tax credit (ITC) benefits were never reaching most truck operators in the past.

 

“One has to understand that 92 per cent of small truck operators have a fleet of hardly 4-5 trucks and are micro enterprises. They were never equipped enough to comply with ITC requirements. So, they were hardly reaping the benefits,” the person said.

 

Moreover, the cost reduction right ahead of the festival season will allow better service delivery as margins usually remain under stress during peak period movement of goods.

 

“Savings on freight bills due to GST cut on multimodal logistics services will definitely boost logistics service demand from domestic and export-focused sectors,” said Ketan Kulkarni, managing director (MD) and chief executive officer (CEO) of Allcargo Gati.

 

Lower GST on fleet and component acquisition will ease capital costs and accelerate the fleet modernisation process, he added.