GST

IMPACT ON SUPPLY CHAIN

MANAGEMENT

JAI KUMAR
CHORARIA
 SUPPLY CHAIN MANAGERS
BALANCE TOTAL LOGISTICS COST FACTORS
AGAINST
CUSTOMER SERVICE FACTORS
Supply Chain Planning Decisions

STRATEGIC

TACTICAL

OPERATIONAL

Procurement Manufacturing Distribution Logistics

 SUPPLY CHAIN IS IMPACTED BY SEVERAL
FORCES :

1. Intrinsic to the Organisation

2. Market Specific Forces
3. Fiscal in nature
 DRIVING FACTORS OF SUPPLY CHAIN

 Sale of Consumables within a state – How to minimise tax

liability.

 How to procure Raw Materials, Packing Material, Consumables in

a most tax effective manner to reduce Landed Cost

 How to maximise Post Tax Return

 How to maximise Value Addition in Supply Chain

 TAX REFORMS IMPERATIVE FOR
COMPETITIVENESS & GROWTH

 Increased International Competition.

 Larger Revenue required for physical & social infrastructure.

 Accelerated Economic Growth is possible only in Conducive Tax

Environment.

Previous complex multiple tax structure not

conducive for growth and competitiveness.
 TAX EFFECTIVE SUPPLY CHAIN

It is the integration of tax planning into business and

value chain restructurings that may involve the
relocation of assets, functions and risks across
jurisdictions.
Increased profit after tax and therefore shareholder
return above the line
Improved supply chain management accessed
through the creation of centrally controlled strategic
and tactical operations.
An ability to leverage procurement scale.
 Improved tax risk management
1. TRANSIT TIME
 The GST will help reduce the transit time for cargo

 Border check posts will phase out resulting in improvement in operational

efficiency

 Quicker and increased number of deliveries along with reduction in logistic cost
during the transit

 As per world bank estimation Indian corporates can save up to 30-40% of

logistic costs incurred due to stoppages at various tolls and check posts.

 A 2015 joint report by the Transport Corporation of India and the Indian Institute
of Management – Calcutta (TCI-IIM-C) shows that the stoppage expense (average
expense incurred due to the stops along the way such as check-posts and customs)
per tonne-km has increased from ₹0.16 per tonne- km to ₹0.28, a 75 per cent
increase between 2011-12 and 2014-15.

 The taxation by State authorities at checkpoints is one of the main reasons for
this rise in cost. This will come down and should further increase the speed of
cargo movement.
2. WAREHOUSING
 Logistics companies in India, until now, have been
maintaining multiple warehouses across the states to
avoid the Central Sales Tax (CST).
 They would then avoid CST and simultaneously avail
input credit obtained through value-added tax.
 Most of these warehouses are operating inefficiently and
certainly not to their full potential.
 India is now becoming one single market wherein goods can
move freely inter-state without any levy, these obstacles will
be taken care of.
Before GST, goods would incur 2% CST when they are
manufactured in one state and sold in another. To avoid this
industries would transfer goods to warehouses set up in each
state from where the sales could be made.
3. OPERATIONS COSTS
 Until recently, each of India’s 29 states taxed goods that
moved across their borders at different rates apart from
that, Corporate state tax of 2% was levied for inter-state
goods transfer. This is the Pre-GST tax structure.
 No varying tax structures are allowed across states under
GST.

 Interstate taxation had resulted in a large number of

unorganized players in this industry. Thus, resulting in
fragmented industry.

 With the introduction of GST, there is likely to be major

consolidation in the industry.

 It could see the emergence of major large players who

can span the entire logistics chain.
 OBJECTIVES OF TAX BASED SCM
Increased profit after tax and therefore shareholder return
above the line.
Improved supply chain management accessed through the
creation of centrally controlled strategic and tactical
operations.
An ability to leverage procurement scale.
Improved tax risk management.
Aligning Tax and Business considerations across the supply
chain.
To enable the companies to evalute, design and implement
changes to their Supply Chain that integrates Tax with
Business Objects.
To ensure Tax enhanced operational benefits and to reduce
overall risk profile.
 INTEGRATION OF TAXES INTO GST

Central Taxes State Taxes

- Excise duty - State VAT

- Service tax - State Excise
- CVD - Luxury tax
- CST - Entertainment tax
- Various Cess - Entry tax
- Addl Customs Duty
GST IMPACT ANALYSIS

SUPPLY
CHAIN

FISCAL CASH
IMPACT FLOW

GST
IT TEXT
SYSTEMS BOX
 SUPPLY CHAIN IMPACT
INTERSTATE SOURCING OF
RAW MATERIALS 22

PRICE NEGOTITATIONS
IMPROVEMENT IN QUALITY
BETTER FORECASTING
IMPROVED INVENTORY
MANAGEMENT
BETTER TRADE-OFF BETWEEN
COST & CUSTOMER SERVICES
CAPACITY EXPANSION
GREATER FLEXIBILITY IN
MANUFACTURING
 CHALLENGES AHEAD

– CREDIT DETERMINATION ON INVENTORY

– CREDIT IN RESPECT OF SEVICE TAX ON

LOGISTICS SERVICES
SPECIAL UNIT IN
THE STATE OF
MAHARASHTRA
 PRE GST-REGIME

SALES
1000
CR

CST/VAT
41 CR

20% 80%
INTRA INTER
 POST GST-REGIME

SALES
1000
CR

GST
18CR
20% 80%
INTRA INTER
 CONCLUSION
• The impact or rather the opportunity is huge for both the
logistic company and their customers to completely relook at
their supply chain.

• This essentially means a significant opportunity for Logistics

companies in India to revise their infrastructure to deliver as well
as reverse logistics for spares and replacements.

• GST is a Win Win solution for all stakeholders.

• It is a key enabler for increasing prosperity.

Thank
You
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