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Logistics: unorganized firms hit, business slowdown a challenge

LiveMint logoLiveMint 03-10-2017 R. Sree Ram

Interactions with industry participants indicate a two-toned impact on the logistics sector. The unorganized sector which constitutes a large chunk of the logistics industry is hit as the transporters and their clients are unable to figure out the myriad options in the new tax law and how they should go about compliance.

“Most are confused whether they have to register or not,” says Sunil Nalavadi, chief financial officer of VRL Logistics Ltd.

For smaller operators in the unorganized sector, technology adoption itself has become a compliance cost while for some others, adherence to monthly tax payments has raised working capital problems as payments from clients come with a lag, says Navin Gupta, secretary general of All India Motor Transport Congress (AIMTC).

The consequence, he says, is the steep drop in business in July. Recovery has been seen in recent weeks, but demand is still low. So much so that even large fleet operators with 500 vehicles are finding it difficult to meet financial commitments like equated monthly instalments, adds Gupta.

VRL Logistics’s Nalavadi says that customers are cautious and are looking to organized companies for transport solutions.

Vineet Kanaujia, vice-president (marketing) at Safexpress Pvt. Ltd, adds that companies that are adept with compliance stand to gain. “For them, GST is merely a transition with some starting trouble, if any,” he says.

That said, the industry is working towards adjusting to the new tax law. The government and the stakeholders are said to be in discussions to iron out the issues. The challenge, however, as AIMTC’s Gupta points out, is to make the new law easier to adopt. Despite assurances, the government is yet to clarify several clauses including issues having bearing on working capital requirements and pertaining to resale of vehicles (there are fears of double taxation), spares and consumables, he laments.

Safexpress’s Kanaujia says there is “urgent need for the government to impart comprehensive knowledge about important procedures such as raising invoices, availing input credit, integration of goods and services, compulsory rating of each entity registered under GST, and so on”.

While tax reform on this scale is not easy to implement, the key now is the swift adoption of corrective steps and measures to arrest the slowdown in business volumes.

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