Logistics: Another blow to the e-way bill and thus to prospects of formalizing the sector - Kotak

In summary: The second (and this time long) deferment of the e-way bill and further leeway provided for unregistered entities to operate in the transportation ecosystem puts at risk the scope of (1) formalization of the logistics sector and of (2) faster turnaround time for road freight. Both these hinged on an intervention-free and compliant process of inter-state product sales which would likely take a back seat for the next two quarters. This would defer compliant transporters gaining relevance as complicit transporters would continue leverage their edge in helping customers evade paying taxes on goods. This would also defer the impact an improved road freight offering could have had on the rail-road modal mix.

Please find our our recent note on the intended and unintended benefits of the e-way bill.

Takeaways and thoughts on the decisions taken by the GST council that impact the logistics sector

We put below the key decisions taken by the GST Council in yesterday's meeting which impact the logistics sector.

- E-way bill deferred in spirit to April 2018. The e-way bill system shall be introduced in a staggered manner with effect from January 2018 and shall be rolled out nationwide with effect from April 2018. The earlier notification was suggested implementation from October 2017.

- Very small transporters exempt from registration. Decision has been taken to exempt service providers with annual turnover is less than Rs2 mn from obtaining registration even if they are making inter-State taxable supplies of services. There was no such provision earlier.

- Goods transport agents allowed to service small unregistered businesses. The services provided by a GTA to an unregistered person shall be exempted from GST. There was no such provision earlier.

The second deferment in implementation of the e-way bill (likely to April 2018) has important implications for the logistics sector. (1) It certainly casts doubts on the form in which the e-way bill would eventually get implemented; further dilutions may get made. (2) It would give a free hand to transporters to continue helping customers evade taxes. (3) Absence of physical border check-posts would likely result in further interference/chances of corruption under the aegis of "random checks". (4) Most importantly, it would dent the trust that compliant SMEs (or those who had turned compliant) have in the GST system. A deferment in the implementation of the e-way bill may also be read as deferment in the real gains tax gains to the exchequer from GST.

Such deferment also defers the prospects of compliant transporters in VRL Logistics becoming more relevant. Our recent discussion with a key FMCG player already casts doubts on the other benefit for VRL Logistics from GST, which is dependent on a marked reduction in the number of warehouses (yields opportunity of LTL truckload over longer distances).

Source : Equity Bulls

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