The research division of rating agency Crisil expects the roll-out of goods and services tax (GST) to reduce logistics costs of companies producing non-bulk goods by as much as 20 percent. The savings will accrue from a gradual phasing out of central sales tax (CST), consolidation of warehouse space and faster transit of goods since local taxes (such as Octroi and local body tax) will be subsumed into GST, Crisil Research said.

However, to maximise benefits from the rollout of GST, complete phasing out of CST (currently paid for inter-state movement of goods) and dismantling of state-level check posts are imperatives, Crisil Research said. “To get states on its side, the government has proposed allowing states to levy an additional tax of 1 percent on supply of goods in lieu of CST for two years. We believe this is against the core principle of GST, and will defer full benefits of the rollout. This will also delay the dismantling of check posts so critical to ensure faster transit of goods,” Crisil said.

“Manufacturers of non-bulk goods spend about 5-8 percent of sales on logistics. GST will save warehousing costs of 1-1.5 percent of sales in 3-4 years. Eliminating check-post delays will yield additional savings of 0.4-0.8 percent, thus taking overall savings to 1.5-2 percent of sales,” said Prasad Koparkar, senior director, Crisil Research.

metakey:crisil,gst