Académique Documents
Professionnel Documents
Culture Documents
Introduction
In today's Indian economy, where service sector contributes over 55%, separate taxation of
goods and services is neither viable nor desirable (Agarwal). Value is added not only in
production but also in sale of goods which comes under services. The taxation of goods and
services are done separately in the present system which brings in cascading effect at several
stages in supply chain. GST (Goods and Services Tax) is the latest indirect tax reforms
undertaken in India since independence. It is a comprehensive, broad-based consumption tax
on goods and services, collected at each stage of value added in the supply chain (Limaye). It
is supposed to replace all the indirect taxes imposed on goods and services by the Indian
central and state governments (Indirect Tax 2012). The Goods and Services Tax which has
been proposed in India is expected to leverage growth in trade and bring in new opportunities
in sectors like logistics and supply chain. It also brings with it better compliance, wider tax
base and efficient design of distribution networks by various companies.
GST is already implemented in more than 130 countries all over the world (Jain, 2009). It has
been existing in Europe for over 50 years in different models. It is interesting to note that
there are over 40 models of GST currently in force, each with its own peculiarities . It has
been estimated that Goods and Services Tax (GST) implementation increased Canadian GDP
by 1.4 percent (Saket, 2011). There have been continuous discussions among different bodies
on national level including Government and industry representatives. The debate basically
focuses on technicalities of GST laws and its implementation. Discussions will include
phasing out of GST, uniform tax rates, modification of sales tax based incentives, merging of
multiple taxes (Madhavan S. , 2009).
In this paper we shall primarily discuss the affects of Goods and Services Tax on supply
chain in Indian companies. Initially, we shall discuss the evolution of GST in India to better
understand the reforms that have been brought in India over time. Further, discussion shall be
on the importance of supply chain in Indian context. Next section shall deal with the changes
in tax laws brought by GST that shall directly impact supply chain in Indian context. Finally,
there is section for post GST implementation changes and challenges in implementation.
liberalizations, globalization and deregulations have been among the steps causing this
growth. Tax reforms also have been brought about in India from time to time. India has
moved from origin based system of taxation to destination based system of taxation (ICAI).
Moving from sales tax system to Value added tax at the state level has been an important
modern tax reform. GST is the next step to move towards consolidation of taxes on goods
and services and achieve true value added tax system that would encompass both the goods
selective exempting some of them. The taxes may be imposed at all the stages or specified
stages depending upon the model. This combination results in variety of models that are
adopted across various countries. Majority of the countries have moved on to the destination
based taxation system as it leads to better compliance and reduction in cascading effect.
Customer
Service Provider
Fig. GST is paid at each step in the supply chain of goods and services
GST is collected on value-added goods and services at every stage of sale or purchase in the
entire supply chain. GST which is paid on the procurement of goods and services can be set
off against that payable on the supply of goods or services. But being the last person in the
supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a
last-point retail tax (thecastreet). It probably considered among the biggest tax overhaul
system, which independent India has seen. Though the implementation date of GST is still
to it when the product travels to another state. Finally the 12.5% VAT is paid when it is sold.
With the implementation of GST in the range of 16-20% potential cost savings may be
brought about which can be reflected in the price of the final product sold to the consumer.
chain network design by the companies. CST (Central sales tax) is one such hindrance. It
imposes irrecoverable interstate tax due to which companies form stocking points in different
states in order to be prevented from paying it. This in various cases results in longer
transportation costs, increased compliance costs. Local taxes like octroi, entry tax and cess
With implementation of GST in India in near future, several changes are likely to occur
which would have significant impact on the supply chain. It is expected to follow a dual GST
structure - State GST and Central GST. Central GST chain is possibly expected to extend till
the retail level. State GST consists of Sales Tax, State cesses and surcharges on goods and
services, Octroi, Entry tax, taxes on lotteries, betting, gambling and purchase tax as the main
components. Central GST on the other hand would incorporate Central excise duties,
additional customs duty (Countervailing Duty - CVD), surcharges, allied levies and service
tax as the key taxes. It is expected that Octroi and Entry tax shall be ruled out. Post GST
inventory will carry Central GST and new GST rates credit. The tax on cross-border sales and
supplies which is imposed as per CST is expected to be removed (Asim Kumar Dasgupta,
2009).
In the present scenario, service tax is required to be paid on logistics services during
distribution and this tax is not off-settable against CENVAT. With GST chain being extended,
it shall allow offset in post manufacturing through input tax credit. This shall lead to decrease
in logistics outsourcing cost for the 10.3% service tax which is charged by logistics
companies against Central GST liability (Anil Rajpal, GST: Impact on th supply chain).
This will encourage outsourcing in supply chains and provide greater impulse to 3PL’s. The
3PLcompanies are have already registered good growth in India for these companies help in
getting full truck load which in turn reduces the per unit cost of transportation of goods.
The post GST is expected to carry Central GST and inter-state GST input credit. The tax rates
may also get changed for many products. The operating firms will be boosted to reduce their
are VATable. These taxes discourage the reverse flow of goods which again is a hindrance to
efficient supply chain. These taxes are proposed to be removed in GST regime which in
future would encourage reverse logistics and location of warehouses in entry tax and octroi
zones (Jagtap, 2009). There are two possible amendable scenarios possible in proposed GST:
CST rates would reduce to zero with no carry-over of input credit across states
Stock-transfers are disallowed/taxed and inter-state sales are taxed with carry-over
allowed
In both cases, companies would no longer be required to have a warehouse in every state
just to facilitate stock transfers and avoid CST. Below is shown through illustration how
Case 1
Warehouse W1
Border
Plant
Customer 1
Customer 2
Case 2
Border
Warehouse W3
Plant
Customer 2
Customer 1
Warehouse W2
warehouses shall be lowered due to removal of interstate central sales tax but there are
certain factors which must be considered before taking any such decisions. Removal of
stocking points in different states may sometimes result into higher lead times and higher
A methodology is developed hereby which can be used to decide upon the warehouses to be
removed and the new network to be set up. Initially, the parameters have been decided
which shall determine about the utility level of a warehouse. These parameters have been
decided after going through distribution policies of various companies operating in India
methodology in the flow chart form in order to select or reject the depots in the distribution
network of a company.
Record the service levels of each depot
Starting with the methodology, following are the parameters that are to be measured in each
a) Service Levels: The service level of a depot may be determined through the
questionnaire given below. This questionnaire may be sent to all stock points to get
responses on various questions, keeping the aim of their future service levels.
iv) Do transporters transport (or capable of transporting) to cities in other States from
the location
v) Availability of transporters
The service level of the depots can hence be found out by allotting required weights to all the
questions provided in the questionnaire. This would give a service level value, through which
b) Costing per shipper: In many companies CFA’s are paid expenses incurred at depot level.
Some of such expenses are listed hereby: Carriage & Freight, Freight on Sample, Freight
sales Return, Depreciation Office Equipment, Depreciation Plant & Equipment, Depot
Warehouse Facilities.
The shipper sizes for various products may be measured at the depots after which the
products within the shippers may also be recorded. Further, sale of each product needs to
No of shippers for a product (in a year)= Total sales of packs of the product
No of packs of the product in a shipper
Likewise total volume for each product at each depot may be calculated. The volume for
Costing per shipper = Total expenses at a particular depot in the given year .
Total volume of all the products handled at a particular depot
c) No. of warehouses handled by each depot: This factor takes into account the efforts of the
d) Inventory Levels: The inventory levels at the warehouses must be low in order to reduce
the administrative expenses under various heads. However, higher inventory levels leads
to better availability and lower lead time of goods. Further, the damage and expiry of
goods must be recorded as a ratio of median inventory level maintained throughout the
year.
e) Distance from nearest depot: The distance matrix must be established which determines
the nearby depots which shall cater to the demands of the depot which may be closed.
f) Expenses: The total expenses which mean Fixed+Operating expenses as a ratio of total
Initially all the depots may be compared on the expenses to sales ratio. This would help in
short listing of depots whose expenses to sales ratio exceed a pre-decided level. For eg. All
the depots having expenses to sales ratio more than 5% or the 10 depots with maximum
expense to sale ratios must be recorded. After short listing of the depots, the expense incurred
by the nearby depots to cater to the warehouses covered by these depots (Short listed depots)
is determined. The expense to sales ratio for the added load on the other depots is recorded
along with their capacity. Finally, three to five depots are shortlisted with the lowest expense
to sale ratio required by nearby depot. Finally, the priority for closing the depot is decided by
the rating based on the service level maintained, cost per shipper, number of warehouses
E- Total Expenses for ith depot for a specified year. It consists of fixed expense, maintenance
expense, cost per shipper, transportation expense, damaged goods expense etc.
i- ith depot
Constraints:
Service Level for ith depot >= SEi (Sepcified minimum service level for ith depot)
Inventory Level for ith depot <=L (Specified minimum inventory level for ith depot)
satisfied)
Demand fulfilled from ith depot<=Ci (Maximum capacity for ith depot)
On closing a depot, the expenses from the nearby depots shall rise due to increased demand
to be fulfilled. If it is less than the expenses incurred on the closed depot possible without
Another method that can be used is internet based DEA (Data Envelopemnt Anaysis) for
warehouses. The approach to benchmark the warehouses here follows the paper on iDEAs-W
by Leon F. McGinnis, Wen-Chih Chen, Paul Griffin, Gunter Sharp, T. Govindaraj, Doug
Bodner.
―With a standard web browser, a prospective user connects to the iDEAs-W website, registers
and creates a password, then provides a relatively small amount of data. Once the data have
been entered, iDEAs-W computes the DEA score and reports it back to the user. The entire
process of entering data takes from 15 to 45 minutes, depending on the proficiency of the
user. Computing the DEA score requires only a few seconds of server time, and the response
time to the user is usually less than one minute, depending on network traffic. iDEAs-W
provides capability for "what-if" analyses by the user, by modifying the resource and output
Conclusion
India is waiting for the next big tax reform as GST for which the deadline presently is April,
2010. It promises to transit the logistics and transportation industries to the next level of
growth. Being inclined towards destination based taxation, GST reduces the increase in tax
due to the cascading effect. There are several post GST implications like Supply Chain Re-
engineering, reorganizing country’s transportation network, growth of 3PL and 4PL
companies, improved service levels and skill up gradation. GST drafted in India has proposed
few crucial changes in tax laws which would have surmount effects on the supply chain
structure of several companies. Few changes in strategies of depot selection and operation
may be required during the GST transition. Some methodologies have been discussed in the
paper which would give proper direction to be followed for cost reduction in supply chain.
Though GST aims to create a unified market across India, there have been several challenges
faced by the GST pre implementation committee which have been discussed. The consensus
among the Centre and States shall be critical in finalizing the model which shall be a stepping
stone for implementation of GST across India.
Bibliography
(n.d.). Retrieved April 25, 2012, from
http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India).
(n.d.). Retrieved April 25, 2012, from wikipedia:
http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
(n.d.). Retrieved May 05, 2012, from ICAI:
http://www.icai.org/resource_file/15962conceptpaper.pdf
(n.d.). Retrieved May 06, 2012, from labnol: http://www.labnol.org/india/law/all-you-wanted-
to-know-about-gst/12111/
(n.d.). Retrieved may 07, 2012, from thecastreet: http://thecastreet.com/all-you-need-to-
know-about-gst
Agarwal, D. S. (n.d.). Retrieved April 28, 2012, from www.taxmanagementindia.com:
http://www.taxmanagementindia.com/wnew/print_Article.asp?ID=123
Anil Rajpal, S. J. (n.d.). GST :Impact on the Supply Chain. Technopak Perspective: Volume 2
.
Anil Rajpal, S. J. (n.d.). GST: Impact on th supply chain. Technopak Perspective: Volume 2 .
Asim Kumar Dasgupta, C. E. (2009). First Discussion Paper on Goods and Services Tax in
India. New Delhi.
Deloitte. (2009). The Pre GST Survey 2009 Before change happens. Deloitte Touche
Tohmatsu India Private Limited.
Dr. John Breen, S. B.-S. The Impact of the Introduction of the GST on Small Business In
Australia.
Haribhakti, B. Goods and Services Tax (GST) in India – Challenges Ahead.
ICAI. (n.d.). Retrieved April 29, 2012, from
www.icai.org/resource_file/15962conceptpaper.pdf
Indirect Tax 2012. (n.d.). Retrieved May 06, 2012, from www.ey.com:
www.ey.com/Publication/.../Indirect_tax_in.../Indirect_tax_2012.pdf
Jagtap, S. (2009, September 9). GST impact on supply chain. Technopak Workshop Series .
Jain, P. (2009). Goods andServices Tax (‘GST’) Regime. KPMG.
Lagadec, G. (2012). New Caledonia Breaking away from France: Which Shape for the
Needed Tax Reform? . Journal of Money, Investment and Banking , 1.
Leon F. McGinnis, W.-C. C. (2002). Benchmarking warehouse performance. Atlanta: School
of Industrial & Systems Engineering, Georgia Institute of Technology.
Limaye, N. A. (n.d.). GST-Get Set To implement. Retrieved April 37, 2012, from
www.caclubindia.com.
Madhavan, S. (2009). Facilitating Trade and Global Competitiveness:.
PricewaterhouseCoopers.
Madhavan, S. (n.d.). Facilitating Trade and Global Competitiveness:Express Delivery Sector
in India. Retrieved April 27, 2012, from www.icrier.org: www.icrier.org/pdf/SMadhavan.pdf
Parkar, N. (2009, October). Goods and Services Act. TCI Logistics , p. 5.
Parkar, N. (2009, Oct). Goods and Services Tax. TCI Logistics , p. 5.
Saigal, M. (2011). Goods and Services Tax. CII.
Saini, D. A. (n.d.). Retrieved May 03, 2012, from www.taxmann.com:
http://www.taxmann.com/taxmannflashes/flashart22-3-10_7.htm
Saket, D. N. (2011). Goods and Services Tax (GST): A Way for Fiscal Prudence. New Delhi:
www.indiastat.com.
Sandor Boyson, T. M. Logistics and the Extended Enterprise. John Wiley & Sons, Inc.
The Law Society of Singapore: Tax Imlications for new partners and sole proprietors. (n.d.).
Retrieved May 10, 2012, from www.iras.gov.in:
http://www.iras.gov.sg/irasHome/uploadedFiles/News_and_Events/Workshops_and_Seminar
s/Seminar%20slides%20for%20Legal%20Practitioners.pdf
Zolt, R. M. (2003). Introduction to Tax Policy Design and Development.