ARTICLE ON GST& ITS IMPACT

ON BUSINESSES AND LOGISTICS

About the Authors:

Himaja Rayana, Suraj Kumar Sahu pursuing PGDM finance and

Business Analytics specialization from Vishwa Vishwani Institute of
Systems and Management, Hyderabad.

G ood news for the companies those are involved in logistics,

consumption and manufacturing industries. After a long wait for around 16

years, the Government of India decided to replace all the indirect taxes
levied on goods and services by the central and states and implement the
GST by 1st of April 2017.

Why the market is so excited about the GST? Will it really be a change
maker? More importantly how will it impact on the Businesses?

Here is the answer for all the questions!

GOODS AND SERVICES TAX (GST):

It is a consumption tax that is collected on sale of

manufactured goods and services, right from the manufacturer to the
consumer. Here the tax is passed on until the last stage, where in the
consumer bears the GST charged by the last dealer in the supply chain
with setoff benefits at previous stages.

GST aims to remove the tax barriers (reducing the cascading effect of tax
on the cost of goods and services). So, all goods and services will be
taxable with minimum exemptions.

Thus, GST is the most important reform that will foster the growth and
reduce the fiscal deficit.

The problem with the current arrangement:

Indirect taxes are taxes levied on manufacture of goods and services and
the consumption. The taxes levied on the manufacture of goods are the
exclusive domain of the central government and the consumption are the
exclusive domain of the state government. This results into 2 problems:

1. Multiple taxes
2. Increases cost for everyone.

For example, some good such as a shirt has to be first manufactured

before it is consumed. The central government, therefore, levies its indirect
tax called central excise at the factory gate. Subsequently, a shirt reaches a
retail outlet and is bought by a consumer. The state government, at this
stage, levies a tax on consumption based value added tax (VAT). So, we
have a tax at the factory gate which adds to the cost of the shirt and
another tax on the final price.

Since states have their exclusive domain on consumption tax within their
borders, they treat goods coming from other states as imports. For
example, if a shirt maker in Punjab buys dye in Gujarat, he would have paid
central excise and Gujarats state taxes on the product. On this cost,
Punjab government would levy its tax if the shirt is sold in the state. If the
shirt is sent across Punjabs border and sold in Delhi, an export tax called
central sales tax is collected by Punjab.

By implementing the GST, the tax barriers between states, and central and
states will disappear.

Now lets see how GST help the consumers???

1. First, all taxes will be collected at the point of consumption. It means that
if a shirt is taxed at 18%, it will include both central governments taxes and
state governments taxes.

2. Second, once barriers between states are removed, we as consumers

will not end up paying tax on tax.

Impact of GST on Businesses:

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TAX
IMPACT
ASSESSME
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SUPPLY
MANAGEME
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&LOGISTICS

TECHNOLOG
ACCOUNTIN
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Moving on to an interesting topic,

How GST will impact the logistics and supply chain?

1. Experts say that there are many ways in which GST will improve
Supply Chain Management (SCM) and logistics in the country. With
GST regime, the supply chain network design would be purely based
on logistics cost & customer service and provides a greater flexibility
into Supply & Demand matching.

Leads to,

Collaboration of small and medium warehouses and form highly

efficient warehouses
 Reduces the share of the enterprises owned by the new private
individuals or households in warehousing.

2. The key trends in supply chain management are:

Cost pressure
Technology
Volatility of Markets

With the GST, cost of any services, including logistics, will be a value add,
and the manufacturer will get tax credit for the service tax paid. In addition
the firms in the unorganized sectors, too, would be expected to improve
their services by using the technology.

3. GST improves the transit and delivery times because state border
crossings would likely to be uncomplicated.

4. Logistics contributes to around 13% of Indian GDP. So, there is need

to employ 3PL and 4PL services to handle the intricate network of
multiple levels and retailers.

References:

1.