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Spoke in the Wheel

    R&M Bureau
    By R&M Bureau, Delhi,
    Wed, Sep 17th, 2014 (06:19:22 PM IST) Section: Industry Category: Advertising & Marketing

    Transportation of goods to rural parts of the country is a foremost challenge for any manufacturer as multiplicity of taxation across states puts a jerk on the supply chain. Experts believe that uniformity in taxation along with faster implementation of GST can ease out the problem.

    Spoke in the Wheel

    A logistic vehicle departs from Mumbai towards Kolkata, when it enters Chhattisgarh, it faces a new set of excise norms. While preparing the documents and meeting the requirement of that state, the truck gets stuck for the entire day.
    The same problem it faces while entering another state of Odisha and while entering the destination state, the taxation norms completely vary from the earlier one. While the truck was supposed to reach Kolkata in 12 days, it took almost 20 days.
    This is a common scenario confronted by most of the manufacturers across the country. The practice of multiple taxation system in various states has put an encumbrance on the supply chain as transporting it to interiors becomes a cumbersome exercise.

    Many logistic companies allege that when trucks cross the border of a state, officials ask to file online documentation. Then the same truck enters another state, its officials come up with the different norms. And therefore, logistics need appropriate information about each state. Alternatively, they consume unnecessary time and many times the goods fail to reach in a scheduled time or the deadline.
    Says Chitra Shinde, president of a leading logistic company, GATI-KWE: “Many states have different requirements. It is non-standardised and therefore requires knowledge.  Many times agents are to be used as well. Some states have begun on-line forms however again there is no data interface and much duplication in transactional work takes place.”
    The hindrances are umpteen it runs till the time goods reach the destination. Professor Nalin Jain of International Management Institute says, “There is a cost of octroi and the taxes what logistics have to pay, but there has always been a hidden cost, the cost of corruption in the check posts that raises the cost of supply chain system which cannot be reflected in the balance sheet or the expense sheet.”
    Some industry specialists allege that in the name of verification of documents they stuck the trucks at check posts unnecessarily for a day or two. This exercise makes the supply chain system very slow and sometimes ineffective when the goods cannot reach to the destination on due time. Whereas, the distributors want an assurance that what time the goods would reach to them. However, in some cases the deadline cannot be met.
    Every state has its own taxation norms, in some states taxation is very low and in some states it is very high. However, the country has a uniform Maximum Retail Price system. In such circumstances, managing the MRP gets a tough task. In maintaining the MRP, manufacturing companies decides the MRP as per the state where the taxation is very high and the product is sold in the same price in a state where the taxation is low. In that case, the consumers have to pay more than the actual. 
    The multiplicity in taxation system makes a way for a parallel channel, in many border areas of the states. Where the taxation is high, there has always been an issue of smuggling of goods, from the state where taxation is low.  It is often seen in the petroleum products.
    Professor Jain explains, “The wholesaler located in the border area of a state, who is operating at a higher price due to higher taxation, can be in a conflict with the wholesaler in his nearby state, who is operating in low price due to low taxation. Because, the wholesaler who is operating in higher price, is supposed to supply in that geographic area, but the goods are coming there from the wholesaler who is operating in lower price in the nearby state”.
    According to a report of Planning Commission, “The cost of operation of commercial vehicles is burdened by a number of levies and taxes, including Central Value Added Tax (CENVAT), state VAT, Motor Vehicle tax, road permit charges, as well as taxes, including CENVAT and state VAT, on inputs such as spare parts and fuel, for which no offset is provided in the service tax.”
    A uniformity of taxation system and making easy the documentation process in the check posts can be the solution of these hurdles. This can ease the operations of supply chain system in the country and finally consumers may not bear the extra burden.
    “Distribution in India across products and services requires a level playing ground. This level playing ground eases out differences and differentiated tax structures across the country will be facilitated by Goods and Service Tax (GST). It is important for GST to kick in across all categories of goods and services, which include alcoholic beverages and petrol & Diesel. Only then we can call our country: One India. Till then, these differences will rule, and these differences will divide the efficiencies of corporate enterprises at large,” says Harish Bijoor, brand expert and CEO, Harish Bijoor Consults Inc.
    The central government and the states need to come out with GST with a consensus with forgetting all political differences. We had already seen the failure in implementing of VAT while all the states did not implement it.
    Prof. Jain says, “There is always an issue of streamlining the whole inter-state taxation system at the execution level. There was an attempt to have been in VAT system in place. But unfortunately, all the states did not implement it. Hence, that is an issue which has to be taken up and cannot be enforced by the central government. Because this is in the jurisdiction of states, and therefore a consensus has to be emerged within the state governments and the policy makers.”
    The major part of the industry wants reforms and uniformity in taxation norms across the states. “We would like to see a faster implementation of GST and clarity on the areas on the Carriage by Road Act that has been requested by the industry. Improved infrastructure and continued economic reforms and policies which will grow the economy which in turn boosts the need for logistics requirements,” Shinde says.
    To conclude, we can say that the central government needs to implement a uniform tax structure to be followed by all the states, and then only, the industry can be benefited.
    In a developing a country like that of India, if such upbeat and practical measures are not taken, than we cannot imagine it to be a progressive nation.