Impact of GST on Road Transport Sector - H&R Block| Blog
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Impact of GST on Road Transport Sector

Even after 3 months since the arrival of GST, there are a lot of apprehensions in the mind of taxpayers. Our Government is quite upbeat about GST; whereas bureaucracy seems to be divided on the success. There has to be initial hurdles as such a massive changeover cannot be totally pre-designed. It is a process of evolution. A lot of things will keep on changing under reality check. Just like demonetization, The Government executives have to be on their toes, to attend to all ripples.

Coming to the road transport industry, it seems to be a cake walk for them. They have got what they wanted most. It is almost a status quo situation similar to Service tax regime. Low tax rate after adjusting all ITC effects, Reverse Charge Mechanism, hence no ITC, no registration needed, no compliances needed, what else one wants! Of course, a small percentage of transporters was ready to opt for FCM; but in my view that would have been a myopic view, as there is no ITC available on 81% of inputs with a huge undo-able compliances by 90% of the industry.

Now the impact on Road Transport!

  1. In Service Tax there were six categories of businesses who had to clear service tax under RCM. The seventh category of proprietors and individuals had to pay service tax to transport to transporters who in turn had to deposit the same with Government. In GST even the 7th category is under RCM.
  1. In GST there are only two divisions
    • the registered ones who will pay GST @ 5% on freight and
    • the unregistered ones that include
      • businessmen whose turnover is below 20 lakhs and
      • Products which are exempted from GST on their sales. In such items, a transporter has to register and clear the payment of GST in RMC.

However, still, there is a catch I A person whose turnover is less than 20 lakh is exempted from GST only till his business is intrastate. The moment he decides to sell his product interstate, he needs to register under GST.

  1. In GST there are two divisions of transport companies also- provider of service – B2B and 82C. A GTA proving services B2B (business to business) enjoys the exemption being in RCM; however, a transporter providing services 82C (Business to Consumer) will have to work in FCM with the same rate of 5% and no ITC: because the consumer is the termination point of a tax trail. A consumer is not expected to register for availing a different kind of services.
  1. The transporters got rid of the menace of OCTROI and Entry tax barriers. These were the time killers for transporters. The corruption had made the agents at such barriers the king; who in connivance with OCTROI officer could make money from hapless transporters sitting faraway. What could not be removed in a continuous agitation and protest in the city of Mumbai; that was removed by the strike of midnight between June 30 and July 1, 2017.
  1. Lorry owners in the transport business is the most important yet most weak link of the freight cycle. He is extremely vulnerable to complex procedures and officer-dom. Lorry owner is the happiest person today that GST has not touched him in the slightest manner.
  1. The transit time will reduce, as lots of time taking barriers will be done away with.

The only unhappy person in the system is the truck supplier/broker.

The lorry supplier/broker is not exempted in the tariff list of GST so by default he gets covered under the last item of services as ‘services not covered anywhere else’. If so, he needs to register and collect 18% on the commission amount charged by him from the lorry owner. Not in a very comfortable position!

These are the visible impacts of GST on the transport trade. Let us see what is going to happen and what is not being discussed too. The main tool in the finance minister’s armoury is going to be ‘E-way Bill’. This E-way bill is a tripartite document. The document gets born on a GSTN portal, a huge server to take care of total business transaction of India when a consignor and a consignee agree for a trade. The consignor fills up the E-way bill format with details of his product like the item, its code, rate, quantity and the payable GST by the consignor. Consignor also mentions the name of the transport company who will be handed over the consignment. Consignee confirms the terms of such a bill. The next party which enters this bill is the transport company. The transport company will have to fill up required fields like Consignment Note No. , Vehicle No., date of loading etc. Once the transporter completes this form, the trade journey starts with receipt of material by transport. The vehicle will not be stopped at check posts but may be intercepted by flying squads for random checking. Checking will be for documentation of E-way bill. In very rare situations material may be checked. However, details about this whole process is awaited.

Now, what does this process do for a transporter? This is an excellent system for an honest transport company; however, this will plug all loopholes for a transporter who practices malpractices. From things which will stop-

  1. The issue of fake consignment notes to oblige customers.
  2. Adjustments in the freight amount and corresponding lorry hire in the year-end balance sheet as these data gets connected to each movement on Government server.
  3. Movement of goods without documents.
  4. Movement of goods with false documents.

These are good moves by Government to stop overall corruption in India. However, such measures should be coupled with certain incentives like phase wise reduction of Income Tax.  Income Tax only drives people to corruption. The number of tax payees in India and out of that tax payees above 10 Lakh rupees income, often mentioned by Prime Minister Narendra Modi tells a complete story. Removal of Income Tax will take away all reasons of corruption in trade and commerce.

Chetan Chandak
Chetan Chandak
Chetan is a Tax-Lawyer by profession and has been working with H&R block as Assistant Manager-Tax Advisory from last four years. He has more than 7 years’ experience in audit, taxation and finance fields. He specializes in personal taxation of HNIs and Top Management Executives. His major area of interest is tax litigation, tax research handling dual tax impact for ex-pat clients. He loves to travel, trek and cook.

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