GST Reforms: The government’s recent decision to reduce GST on essential goods was widely welcomed as a move to ease the tax cost burden on essentials, boost consumption, and stimulate economic activity. While the rate rationalization is aimed at the reduction of overall effective tax rates, the GST Council has brought the local delivery services provided by online digital platforms under the 18% slab rate.
According to experts, since local delivery services have not been defined under the GST Law, it is expected that the definition and ambit of such services would be notified subsequently. They said that the increased tax incidence on the essential last mile delivery services wipes out much of the intended benefits, particularly impacting millions of small businesses, earnings of the gig workers, and consumers who depend on essential, critical and affordable logistics.
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Many MSMEs in India operate below the GST threshold or are under the composition scheme. The majority of them are struggling with slim margins, logistics costs and a tax burden, resulting in strenuous operating expenses, claimed the experts.
With the new GST regime on local delivery services, MSMEs are forced to either absorb or pass on the higher costs of delivery to their consumers – a move that directly nullifies the intended relief on essential goods.
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This is in stark contrast with other service categories operating through e-commerce platforms/ aggregators. In sectors such as personal and home services booked over e-commerce platforms, the GST rate is kept at 5% to encourage affordability and also considers the unregistered services providers, offering their service on the platform. Logistics, a critical enabler for essential goods, now attracts the highest tax slab of 18% GST. This places it on par with non-essential and luxury services, creating a direct financial burden on a sector vital for the economy.
Logistics is a foundational layer of India’s economy, not just an ancillary function. It enables MSMEs to reach markets, sustains millions of livelihoods through gig work, and ensures consumers across cities and towns have access to goods at reasonable costs. Burdening this sector with an 18% tax slows down demand across sectors, constraining earnings for gig workers, and diluting the affordability of essentials for households, said experts.
Experts advise that it would be wise to pursue a more calibrated approach, one that treats logistics as a growth enabler rather than a sin cost to be taxed heavily, balancing affordability for consumers, sustainability for MSMEs and gig workers of India.