Positive impact of GST on Ports & Ports Related Logistics

Excerpts from a recently released report by rating agency ICRA which presents its take on impact of GST on different sectors…

The net increase in tax rate on cargo handling services provided by ports and port logistics would be offset by input tax advantages from the new regime. Firstly, both Ports and Port Logistics being highly capital intensive in nature, the VAT paid on equipment and consumables ranging 5%-13.5% was not recoverable in the earlier regime. Under GST, the same would be recoverable. Secondly, the excise paid on equipments which was recoverable in two years (50% each in years 1 and 2 post purchase) will now be fully recoverable in first year under GST. Even if the net impact of the above results in a modest increase in transportation cost, it should not affect cargo traffic for the port operators. Over the long run, GST will be a positive development for the port related logistics segment. Port related logistics are required for facilitating cargo movement, and comprises Container Freight Stations (CFS), Inland Container Depots (ICD) and Container Train Operations (CTOs). As GST implementation would bring about significant improvements in ease of doing business and in supply chain efficiencies of various industries, the port logistics industry, being a facilitator, will witness considerable opportunities for growth. These players would be able to generate higher incomes from value added activities such as special purpose warehousing and inventory management. Besides, some of these players have expanded in other areas of businesses like supply chain management, road transportation and contract logistics and would benefit significantly as companies would look to setup integrated supply chain facilities like warehousing near consumption centers. Industry leaders are setting up Multi Modal Logistics Parks (MMLP) at strategic locations, which would facilitate efficient supply chain planning by companies as they look to reduce their total logistics cost. These would lead to increase in the cargo volumes handled by these companies and would provide an overall boost to their revenues and profitability. Sizeable investments are expected by the warehousing and the contract logistics companies towards setting up large and technology-enabled warehouses at strategic zonal centres. Overall, GST should be a game changer for the port related logistics industry. However, the benefits would be realized only over the medium term.

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