Impact of GST On Supply Chains in India: MBA (Logistics & Supply Chain Management)

IMPACT OF GST ON SUPPLY CHAINS IN INDIA
Dissertation submitted to College of Management & Economic Studies for the partial fulfilment of the degree of
MBA (Logistics & Supply Chain Management)

Guided by:
Faculty: Prof. Loveraj Takru Industry Fellow College of Management and Economic Studies University of Petroleum & Energy Studies Dehradun 248 006
Submitted by:
Gurjot Singh
Enrollment No: R600210019 SAP ID: 500011384
College of Management and Economic Studies University of Petroleum and Energy Studies, Dehradun, Uttarakhand, India
April, 2011
ACKNOWLEDGEMENT
I take this opportunity to thank everyone who has helped me during the course of this project.
At the very outset, I would like to express my gratitude to my mentor, Prof. Loveraj Takru for his invaluable guidance and support throughout the project. His expertise, knowledge and critical feedback helped me to develop my project in the most appropriate way.
I would also like to thank Mr. Avtar Singh - ETO (Core committee member for implementing GST in Punjab) and Mr. Sebastian Zacharias DGM (Future Supply Chain Solutions Limited) whom I was continuously in touch with and they provided me valuable information which helped me in completing my Project.
Finally, I express my wholehearted gratitude to my Program director Dr. Neeraj Anand, who always guided me for this project
Date:
Gurjot Singh
Executive Summary
India is on the verge of implementing GST. It will be one of the most important tax reforms in the history of India. GST has been already in many countries across the world and it has really proved to be beneficial. Goods and Services Tax (GST) is a broad based, single, comprehensive tax levied on goods and services consumed in an economy. GST is levied at every stage of the productiondistribution chain with applicable set-offs in respect of the tax remitted at previous stages. It is basically a tax on final consumption. To put at a single place, GST may be defined as a tax on goods and services, which is levied at each point of sale or provision of service, in which, at the time of sale of goods or providing the services, the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service.
It is seen as the panacea for removing the ill-effects of the current indirect tax regime, prevalent in the country. If adopted and implemented in its true spirit, GST may neutralize the existing problem of taxes being levied on top of taxes. For instance, when a shoe company produces a pair of shoes, the Central Government charges an excise duty on them as they leave the factory. At the retail level, the state where the outlet is located, charges VAT (different states charge different rates of VAT) without giving credit on the excise duty levied earlier (the state tax is levied on top of a central tax). In the GST system, both central and state taxes may be collected at the point of sale. Both components (the central and state GST) may be charged on the manufacturing cost. The government plans to introduce dual GST structure in India. Under dual GST, a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction. This dual structure will ensure a higher involvement from the states, and consequently their buy-in into the GST regime, thus facilitating smoother implementation. Both the tax components will be charged on the manufacturing cost. The government is deliberating on fixing the value of combined GST rate at the moment, which is expected to be between 14-16 per cent. After the combined GST rate is decided, the centre and the states will finalize the CGST and SGST rates. All kinds of goods and services, barring some exceptions, would be under the GST purview.
GST will provide a huge opportunity to the business houses in India to grow and modify their supply chains in order to function efficiently and earn profits. It will let them have pan India operations with uniform taxation system. It will be helpful in removing the shortcomings of the present tax structure prevalent in India such as double tax, cascading effect etc.
Contents
CERTIFICATE OF ORIGINALITY ACKNOWLEDGEMENT Executive Summary Review of Literature ................................................................................................................................... 1 Need/motivation for Research.................................................................................................................... 4 Objectives..................................................................................................................................................... 4 Impact of GST on supply chains in India (Introduction) ........................................................................ 5 History of Taxation ..................................................................................................................................... 6 History of Taxation in India....................................................................................................................... 6 Value Added Tax....................................................................................................................................... 11 VAT in India.............................................................................................................................................. 11 Benefits of VAT ......................................................................................................................................... 12 Introduction to GST ................................................................................................................................. 12 Benefits of GST ......................................................................................................................................... 13 Backgroung of GST in India. ................................................................................................................... 14 Need for GST in India .............................................................................................................................. 17 Why GST is preffered tax structure ........................................................................................................ 20 GST and Supply Chains ........................................................................................................................... 22 Some more considerations in regard to GST .......................................................................................... 42 Conclusion ................................................................................................................................................. 45 Bibliography.47
Review of Literature
Goods and Services Tax (GST) is a part of the proposed tax reforms that centre round evolving an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them.
In the Union Budget for the year 2006-2007, Finance Minister proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. He proposed to set April 1, 2010 as the date for introducing GST. World over, goods and services attract the same rate of tax. That is the foundation of a GST. The first step towards introducing GST is to progressively converge the service tax rate and the CENVAT rate.
The goods and service tax (GST) is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at a national level. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end the long standing distortions of differential treatments of manufacturing and service sector. The introduction of goods and services tax will lead to the abolition of taxes such as octroi, Central sales tax, State level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, and eliminate the cascading effects of multiple layers of taxation. GST will facilitate seamless credit across the entire supply chain and across all states under a common tax base.
As we have parallel systems of indirect taxation at the central and state levels, each of the systems needs to be reformed to eventually harmonize them. The central excise duty should be converted into a full fledged manufacturing stage VAT on goods and services and the states sales tax systems should be transformed into a retail stage destination based VAT, before the two are integrated. At the central level, beginning has been made by converging
Impact of GST on Supply Chains in India
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widely varying tax rates and extending input tax credit to convert excise duties into a CENVAT. The Goods and Services Tax (GST) is a value added tax to be implemented in India by April 2012. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services with few tax exemption. India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively. Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle. 115th Constitutional Amendment Bill, 2011 (Bill) was put before the Parliament by the Finance Minister on 22 March 2011. In its current state, the Constitution of India does not provide concurrent powers of taxation to the Union and the States. The Bill proposes to amend the Constitution to empower the Union and States to frame laws for levying goods and service tax (GST) on transactions involving the supply of goods and services. The Bill is thus a crucial step by the United Progressive Alliance Government to ensure introduction of the GST regime by 2012 in India. If this is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirect tax reform in the country. Keeping this overall objective in view, an announcement was made by Shri Palaniappan Chidambaram, the Union Finance Minister, during the central budget of 20072008 that it would be introduced from April 1, 2010 and that the Empowered Committee of State Finance Ministers, on his request, would work with the Central Government to prepare a road map for introduction of GST in India. After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group on May 10, 2007, with the Adviser to the Union Finance Minister and the Member-Secretary of Empowered Committee as co-convenors and the
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concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the states as its members. The Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee on November 19, 2007. This report was then discussed in detail in the meeting of Empowered Committee on November 28, 2007. On the basis of this discussion and the written observations of the states, certain modifications were made, and a final version of the views of Empowered Committee at that stage was prepared and was sent to the Government of India (April 30, 2008). The comments of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee (December 16, 2008). It was decided that a committee of Principal Secretaries of the states would be set up to consider these comments and submit their views. These views were submitted and were accepted in principle by the Empowered Committee on January 21, 2009. A working group, consisting of the concerned officials of the State Governments was then formed and submitted their recommendations in detail on the structure of the GST in close association with senior representatives of the Government of India. An important interaction has also recently taken place between Shri Pranab Mukherjee, the Union Finance Minister, and the Empowered Committee (October 19, 2009) on the related issue of compensation for loss of the states. The Empowered Committee took a detailed view on the recommendations of the Working Group of officials and other related matters. The discussion paper is divided into four sections. Since GST would be further improvement over the VAT, Section 1 begins with a brief reference to the process of introduction of VAT at the Centre and the States and also indicates the precise points where there is a need for further improvement. This section also shows how the GST can bring about this improvement. Section 2 then describes the process of preparation for GST. Finally, Section 3 details the comprehensive structure of the GST model. No taxing system can completely eradicate the effect of cascading, but implementation of GST, to a large extent, will minimize the effect. GST will provide a simple structure to levy, collect and administer the taxes in the Country.
Impact of GST on Supply Chains in India Page 3
"World over, GST rates are typically between 16 per cent and 20 per cent. In India, it is likely to be the same," CBEC Chairman Sumit D Majumdar said. The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times. Although rates would come down, tax collection would go up due to increased buoyancy. The government is working on a special IT platform for smooth implementation of the proposed Goods and Services Tax (GST). The IT special purpose vehicle (SPV) christened as GST N (Network) will be owned by three stakeholdersthe centre, the states and the technology partner NSDL, Central Board of Excise and Customs (CBEC) Chairman S Dutt Majumder said while addressing a "National Conference on GST". On the possibility of rolling out GST, he said, "There was no need for alarm if GST was not rolled out in April 1, 2012." The introduction of GST regime has been pending for four years due to differences between the centre and some states over the structure of the new tax regime
Motivation/Need for Research
GST is being implemented to remove the ill effects of the present taxation system. It has been an issue of debate since its proposal. The opposition has opposed its implementation. Finally the GST is going to be implemented in April 2012. All the industries are concerned about how it is going to have impact on their industry vertical. So, in dissertation I will be studying how this GST is going to have its impact on supply chains in India.
Objectives: 1. To understand the existing taxation system along the supply chain of industries in India. 2. To study what exactly is GST and what is the need of implementing it in India. 3. To arrive at a result which clearly shows what will be the impact of GST on supply chain and who will be the beneficiary in its implementation.
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Introduction
The charge comes from the Latin word 'taxare' meaning 'estimate'. "A tax is a voluntary payment or donation, but a contribution applied, under the pretended power of legislation" and is a contribution to the Government under the name of toll, tribute, tax, duty, custom, excise, subsidy, aid , supply, or some other name. "(Black Law Dictionary) Funds provided by taxation have been used by states and their functional equivalents throughout history to perform many functions. Some of these include the costs of the war, law enforcement and of 'public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and operation of government itself. Most modern governments also use taxes to fund welfare and public services. These services may include education, health care systems, and pensions for the elderly, unemployment benefits, and public transportation. Energy management systems, water and waste services are common utilities. Governments use various types of taxes and tax rates vary. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes of the population. Taxation has four main purposes or effects: Revenue, Redistribution, Re-pricing, and Representation. The main purpose is revenue: taxes raise money to spend on roads, schools, hospitals, and other indirect government functions such as regulation of the market or legal systems. The second purpose is the redistribution, which means the transfer of wealth from the wealthiest sectors of society to poorer sections. A third purpose of taxation is re-pricing of certain goods to increase or decrease their use. Taxes are levied to discourage the consumption of certain items such as tobacco, alcohol. A fourth effect of taxation has been the representation, where the citizens pay taxes and in return ask for the accountability of rulers or governments. Several studies have shown that
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direct taxation (such as income taxes) generates the highest degree of accountability and better governance, while indirect taxation tends to have smaller effects.
History of taxation
The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC in the first dynasty of the Old Kingdom. Records of that time show that Pharaoh would have conducted a two-year tour of the kingdom, collecting tax revenues from the people. Other records are granary receipts of limestone flakes and papyrus. Early taxation is also described in the Bible. In Genesis (chapter 47, verse 24 - New International Version), it says "But when the crop comes in, give a fifth of it to Pharaoh The other four fifths you may keep as seed for the fields and as food. You and your family and your children. "Joseph said the people of Egypt how to divide their crop, providing a portion to the Pharaoh. A proportion (20%) of the crop was the tax.
History of taxation in India

In India, the tradition of taxation is in place since ancient times. It finds its references in many ancient books like 'Manu Smriti' and 'Arthasastra'. There was a perfect admixture of direct taxes with indirect taxes, and were of various kinds. History of taxation in India suggests the existence of a large population and complex tax. With the advent of the Mughals in India, the country witnessed a sea change in the taxation system in India. Although, also practiced the same rule of taxation, but was more homogeneous in structure and in the collection.
The Islamic rulers imposed Jizya. It 'was then abolished by Akbar. However, Aurangzeb, the last major Mughal emperor, levied Jizya on his subjects in the Hindu majority in 1679. The reasons for this are cited for financial rigor and personal inclination of the Emperor, and a petition by the Ulema. His subjects were taxed in accordance with the ownership of their property. Government employees were exempt, as were the blind, lame, and the indigent. Its introduction met with much opposition, which was, however, abolished.
Jizya is a head tax levied on a section of an Islamic state of non-Muslim citizens who meet certain criteria. From the point of view of Muslim rulers, Jizya was a material proof of acceptance of submission to the State and its laws of non-Muslims' ", as well as for the inhabitants was a continuation of the actual taxes paid under previous regimes." In return, non-Muslim citizens were permitted to practice their faith, have some local autonomy, to be entitled to the protection of the Muslim state from external aggression, to be exempted from military service and the Zakat as obligatory for Muslim citizens.
The period of British rule in India has seen a remarkable change in the tax system across India. Even though, was very supportive of the British government and its treasury, but has incorporated modern and scientific method of tax instruments and systems. In 1922, the country witnessed a paradigm shift in the overall Indian fiscal system. System configuration and administration of the tax system was first made by the British.
In principle, there are two types of taxes ie. The direct and indirect taxes.
a) Direct Taxes - The tax paid to the government directly from the assessee. The tax on income and on capital, Corporate Tax are classic examples of direct taxes in India.
b) Indirect taxes - When taxes are paid indirectly, return into the field of indirect taxes. And the tax that is levied on goods or services rather than on persons or organizations. The excise taxes, customs duties, sales tax and service charge are examples of indirect taxes
Taxes in India are levied by the central government and the state governments. Some minor taxes are collected by local authorities such as municipality or local council. The authority to impose a tax that is derived from the Indian Constitution assigns the power to impose various taxes between the Centre and the State. A major limitation of this power is Article 265 of the Constitution, which states that "No tax is levied or collected except by authority of law."
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So any tax levied or collected must be supported by an accompanying law, approved by the Parliament or state legislature. Article 246 of the Indian Constitution distributes legislative powers, including taxation, between Parliament and the state legislature. Article 246. Object-laws made by Parliament and the legislatures of the States. (1) Notwithstanding the provisions of clauses (2) and (3), Parliament has the exclusive power to make laws with regard to any of the matters enumerated in List I of Seventh Schedule (in this Constitution referred to as the "Union List"). (2) Notwithstanding paragraph (3), Parliament, and, under clause (1), the legislature of a State the power to make laws with regard to any of the matters set forth in Schedule III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the legislature of a State has the exclusive power to make laws for that State or part thereof for any of the matters set forth in Schedule II in the Seventh Schedule (in this Constitution referred to as "State List"). (4) The Parliament has the power to make laws on any matter for any part of Indian territory not included in a State, although the matter is one listed in the state list. " Schedule VII lists these themes with the use of three lists List - I namely the areas on which Parliament alone is competent to make laws List - II , the areas in which only the state legislature can make laws, and List - III, which lists the areas on which both Parliament and the state legislature can make laws about the same time. The list of thirteen Union heads of taxation and the list of nineteen State heads are given below: Sl. No. 1 2 3 Parliament Taxes on income other than agricultural income (List I, Entry 82) Duties of customs including export duties (List I, Entry 83) Duties of excise on tobacco and other goods manufactured or produced in India except (i) alcoholic liquor for human consumption, and (ii) opium, Indian hemp
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4 5
6 7 8
9 10
11
12
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and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in (ii). (List I, Entry 84) Corporation Tax (List I, Entry 85) Taxes on capital value of assets, exclusive of agricultural land, of individuals and companies, taxes on capital of companies (List I, Entry 86) Estate duty in respect of property other than agricultural land (List I, Entry 87) Duties in respect of succession to property other than agricultural land (List I, Entry 88) Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freight (List I, Entry 89) Taxes other than stamp duties on transactions in stock exchanges and futures markets (List I, Entry 90) Taxes on the sale or purchase of newspapers and on advertisements published therein (List I, Entry 92) Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce (List I, Entry 92A) Taxes on the consignment of goods in the course of inter-State trade or commerce (List I, Entry 93A) All residuary types of taxes not listed in any of the three lists (List I, Entry 97) State Legislature Land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues (List II, Entry 45) Taxes on agricultural income (List II, Entry 46) Duties in respect of succession to agricultural income (List II, Entry 47) Estate Duty in respect of agricultural income (List II, Entry 48) Taxes on lands and buildings (List II, Entry 49) Taxes on mineral rights (List II, Entry 50) Duties of excise for following goods manufactured or produced within the State (i) alcoholic liquors for human consumption, and (ii) opium, Indian hemp and other narcotic drugs and narcotics (List II, Entry 51) Taxes on entry of goods into a local area for consumption, use or sale therein (List II, Entry 52)
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Sl. No. 1
2 3 4 5 6 7
9 10 11
12
13 14 15 16 17 18
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Taxes on the consumption or sale of electricity (List II, Entry 53) Taxes on the sale or purchase of goods other than newspapers (List II, Entry 54) Taxes on advertisements other than advertisements published in newspapers and advertisements broadcast by radio or television (List II, Entry 55) Taxes on goods and passengers carried by roads or on inland waterways (List II, Entry 56) Taxes on vehicles suitable for use on roads (List II, Entry 57) Taxes on animals and boats (List II, Entry 58) Tolls (List II, Entry 59) Taxes on profession, trades, callings and employments (List II, Entry 60) Capitation taxes (List II, Entry 61) Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (List II, Entry 62) Stamp duty (List II, Entry 63)
Some of the most important central taxes are: Customs Duties - Tax on imports CENVAT - tax manufacturing Service tax - tax on specified services
Some State taxes are: Central Sales Tax (CST)-tax on inter-State sale of goods State Value Added Tax / State Sales Tax net of taxes on trade sale of state assets Works contract Tax-fee contracts which provide for the sale of goods and services Entry tax on incoming goods in a State Other local taxes
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Value Added Tax

The VAT is an indirect tax on consumption of goods, paid for by its original producers of the goods or change the time of transfer of goods to final consumers. It is based on the value of the goods, added by the seller. And 'the tax in relation to the difference between the value added by the transferor and not just a profit. Throughout the world, VAT is payable on the goods and services, which are part of the national GDP. This means that the tax is applicable at every stage of value added goods.
VAT in India
Post liberalization, we can say that the value added in India is one of the most important component of reforms.VAT tax can be defined as a multi point destination-based taxation, so that is levied at every stage of the transaction in chain.VAT supply is actually a state subject in India, acquired from Entry 54 of the state list, for which the states are sovereign in taking decisions. With the help of tax services in their respective states, state governments in ensuring recovery of VAT. The central government is instrumental in guiding the state government regarding the implementation of VAT.
The revenue department of the Ministry of Finance is empowered to have control on direct and indirect taxes, through two statutory bodies, namely the Central Board of Direct Taxes (CBDT) and Central Board of Customs and Central Excise ( CBEC). The division's sales tax revenue department is responsible for collecting VAT. India has had a problem of double taxation.
Goods have been taxed before production once and then again after production. To avoid this double taxation, which had a negative impact on the economy, the VAT was introduced.
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Benefit of VAT Reduce tax evasion. The multiple taxes, such as turnover, surcharge on sales tax, surcharge etc were to end. Maintained a system of internal self-assessment for the tax liability. Tax structure becomes easier and more visible. Improve the fight against tax evasion and results in higher revenue growth. Encourages the competitiveness of exports.
Introduction to GST
Goods and services is a broad-based tax and a single global levied on goods and services consumed in an economy. GST is levied at every stage of production-distribution chain with offset in the field of tax relief in the previous phases. It is essentially a tax on final consumption.
In simple terms, GST can be defined as a tax on goods and services, which are taxable at every point of sale or supply of services, which at the time of the sale of goods or provision of services of the seller or service provider can benefit of input tax credit that paid while purchasing the goods or provide the service
Origin Goods and services, also known as the Value Added Tax (VAT) or Harmonized Sales Tax (HST) was designed by a German economist during the 18 th century. He predicted a sales tax on goods that do not affect the cost of production or distribution but was collected on the final price to the consumer. So no matter how many transactions went through the property, the tax was always a fixed percentage of the final price.
The tax was finally adopted by France in 1954. Maurice Laur, Co-director of the French tax authority, the Direction gnrale des impts, was the first to introduce VAT of 10 April 1954. Initially aimed at large enterprises, has been extended over time to include all sectors of activity. Personal end-consumers of products and services can not recover VAT on purchases, but businesses can recover VAT on materials and services you buy to make further supplies or services directly or indirectly sold to end users. Thus, the total tax levied at each stage of the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by the businesses, rather than by state. The VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. Value added avoids the cascading effect of sales tax by only taxing the value added at each stage of production. The value added tax is gaining favor over traditional sales taxes worldwide. In principle, value added tax applies to all commercial activities involving the production and distribution of goods and services. VAT is assessed and collected on the value added to goods in respect of each transaction. Under this concept, the government is paid tax on the gross margin of each transaction.
Benefit of goods and services tax Remove cascading effect of taxes through the entire supply chain, reducing the cost of doing business and making the economy competitive. Delete multiplicity of taxes, rates, exemptions and exceptions. Eliminate the double taxation of the same transaction (eg VAT & Service tax on EPC (engineering, procurement and construction) contracts. Reduce production costs. Achieves uniformity of taxation throughout the territory, regardless of place of production or distribution. It provides greater certainty and transparency of taxes. Ensures the fight against tax evasion throughout the economy.
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Increases and creates buoyancy in the economy.
Background of goods and services tax (GST) in India
The Kelkar Task Force on the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act 2003, had stressed that, although the indirect tax policy in India has risen steadily in the direction of the principle of VAT in 1986, the current system taxation of goods and services still suffers from many problems. The tax base is fragmented between the Centre and States. Services, which account for half of GDP, are not taxed appropriately. In many situations, the tax structure in place has cascading effects. These problems lead to low tax-GDP, in addition to causing various distortions in the economy.
In this context, the Kelkar Task Force had recommended a comprehensive Goods and services tax (GST), based on the principle of VAT. Value Added Tax (VAT) is a modern and progressive sales tax. Brings into the system of self-evaluation that has given rise to transparency and mutual trust. And 'charged by the dealers at the price paid by the customer. The committee has published a White Paper on VAT 17 January 2005. This was the uniform basic states have decided to take to avoid competition between states.
VAT replaced sales tax on January 4, 2005. The Empowered Committee, constituted by Government of India, provided the basic framework for uniform VAT laws in the states, but states have freedom to set their own assessments for the tax levied on its territory. The effort to introduce the new tax regime was reflected, for the first time, in 2006-2007 Union Budget Speech. The then finance minister P. Mr. Chidambaram noted that there is broad consensus that the country should move towards a national level GST that must be shared between the center and states. He proposed April 1, 2010 as the date for introducing GST. The current rates for service tax and CENVAT, which is closest to the overall rate of GST, and steps towards the gradual elimination constant of central sales tax (CST), clearly alludes to the attempt by the Indian government. Subsequently, the Empowered Committee of State
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Finance Ministers has agreed to cooperate with the central government to prepare a roadmap for the introduction at the national level GST with effect from 1 April 2010.
In May 2007 granted Committee (EC) of the Finance Ministers of State in consultation with the Central Government, has established a Joint Working Group (JWG), to recommend the model GST. The mandate of the Working Group was as follows: GST should be designed so that should be revenue neutral to the Centre and states. Interest Special Category, North-Eastern States and Union Territories should be particularly kept in mind. The group will explore different models and ensure that the power of removal, collection and appropriation of revenue must be invested with the Centre and the States by examining the pros and cons. The various models should ensure that double taxation is avoided. The models must take into account the problems encountered in inter-state transactions and the possible loss of revenue. Focus on the treatment of zero-rated goods and services and non-tax items. The interests of the Centre, States, Trade, Industry, Agriculture and Services to be properly represented.
Within 7 months of its constitution which is in November 2007, JWG presented its report on GST to the Empowered Committee. The Committee accepted the report on GST submitted by the Joint Working Group. The Committee submitted its recommendations to the Government of India as' a model and roadmap for goods and services India dated April 30, 2008, which includes outline of the design proposed GST. The opinions of the Empowered Committee are being examined in the Ministry of Finance for an appropriate response to the Committee so that the details of further work are facilitated.
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Some of the recommendations of the Joint Working Group on goods and services are as follows: GST should have two components, a tax bracket and one was uniform throughout the country. A charge over GST may be imposed by states on tobacco, petroleum and liquor. The GST cannot have a double structure of VAT, but a quadruple tax structure. It can have four components, namely (A) a charge on goods central which extends up to the level of detail; (B) a tax service centre; (C) a state-VAT on goods and (D) a state-VAT on services.
Because of the structure to four times, there may be at least four categories rate one for each of the above components. In this system, the taxpayer may be required to calculate tax liability separately for the different tax rates. The JWG report has suggested that states must tax intra-state, while the facilities of interstate services must remain with the Centre. Petroleum products, including crude oil, high speed diesel and gasoline, may remain outside the scope of GST. The report had also proposed the elimination of area-based exemptions and sectoral excise duty which are compiled by the Centre.
Central Governments units, such as education and processing oil can be kept outside the dual GST structure has been introduced from April 2010. Besides central process, the EC of State Finance Ministers has also recommended to keep the purchase and consumption tax that is collected at the state level and local level, outside the GST framework.
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The working group had suggested between process and surcharges, which are levied for specific purposes on taxes at central and state governments, and had suggested to meet the specific requirement through budgetary allocation.
The report also recommended conservation stamp, which is a good source of revenue for the States, the responsibility of the GST. Stamp duty is levied on transfer of assets like houses and land. It was also suggested keeping levies like toll tax, environment tax and road tax outside the GST, as these are user charges. The draft report recommended that, if the withdrawals are in the nature of user chargers and royalty for the use of minerals, and then must be held outside the jurisdiction of the proposed tax.
All these developments in the Indian tax Scenario, it is quite evident governments incessant effort towards the successful introduction and implementation of the GST regime. The discussion paper on the Prime goods and services in India by the Empowered Committee of State Finance Ministers was issued November 10, 2009.
Need For Goods and Services Tax in India
There is a saying in Arthshastra Kautilaya, the first book in the world economy, that the best tax system is what is "liberal in the assessment and ruthless in its collection." The proposed GST seems to be based on this principle.
First of all, while the present system allows a multiplicity of taxes were collected through a system inefficient and non-transparent, the introduction of GST is likely to rationalize and then connect the slots in this system. This will allow the government to stop theft and
streamline the tax system overall. While many areas are either under-taxed or not taxed or over-taxed, the GST will help reduce the overall tax burden of many organizations.
Introduction of an integrated goods and services tax (GST) to replace the existing tax structures of multiple taxes and the State Center is not only desirable but essential in the emerging world economy. Increasingly, services are used or consumed in the production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting operations in the value of the value of goods and services tax, which leads to greater complexity, administrative costs and compliance.
Moreover, the Indian economy is increasingly globalized. In recent times, a number of free trade agreements (FTAs) were signed, which will allow the import into India duty free or very low duties. So, no need to have a nation-wide simple and transparent system of taxation to enable Indian industry to compete not only internationally, but also in the internal market. Integration of the various central and state taxes in a GST system would make it possible to give full credit for input taxes collected. GST to be a destination-based consumption tax based on the principle of VAT, also a great help to eliminate economic distortions caused by this complex tax structure and will contribute to the development of a common national pronounced.
A basic pre-requisite for the introduction of the GST is significant that both the center and the State has to replace existing taxes such as excise duty, Sales State Tax / VAT, CST, entry tax and all other cascade-type Central / State levies on goods and services. Any losses due to suppression of multiple taxes can be offset by additional revenue from the GST tax will get the services and access to GST on imports. Moreover, India could achieve efficiencies of a complete single national VAT, while retaining a federal structure. This would also be the logical conclusion of the efforts that have been made in the country over the past 2 decades to VAT.
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The benefits of the GST legislation will be the uniformity of laws across the board, greater transparency, neutrality of the tax rates on various products, the availability of credit on interstate purchases and reduce compliance requirements. If GST is implemented in true spirit, will have many positive aspects for stakeholders and lead to a better tax environment.
Introducing GST will do more than just a redistribution of tax burden from one sector or group in the economy to another. The introduction of the GST involves dividing a macro by reducing the overall incidence of indirect taxes and the overall tax burden by eliminating the many functions of the distortionary tax system sales.
There are four important macroeconomic channels through which this occurs:
a) First, the failure to tax all goods and services distorts consumption choices, but it weakens the power indicator of relative prices. GST reduces these distortions and allows all traders to respond more effectively to price signals.
b) Secondly, the taxation of capital goods un refunded discourage saving and investment and productivity growth slows. This is perhaps the most important gain through the introduction of GST in an emerging economy like India.
c) Thirdly, for a given constellation of exchange rates and price levels, the violation of destination principle puts local producers in a competitive disadvantage compared to producers in other jurisdictions.
d) Fourth, the differences in tax bases of different states and the central government to significantly increase the cost of doing business. The base of the GST tax reform offers a real political opportunity to do something about this problem without waiting and radical changes in economic policy.
Why GST is the preferred tax structure?
The implementation of GST would ensure that India provides a tax system that is almost similar to the rest of the world. It will also improve the international competitiveness of cost of goods and services native. In addition, it will also encourage a fair tax structure that is neutral to business processes and geographies.
Implementation of the GST also removes several roadblocks within the existing tax system in India. Some of these are: a) Cascade Tax - Goods and Services Act is to overcome the problem of tax cascade through mechanisms of input tax credit. With this system, sellers or suppliers of goods and services are entitled to use tax credits on the amount of GST paid to eligible contracts. Manufacturers can use credits for the GST paid to procure inputs, capital goods and services used in the production process. Similarly, wholesalers and retailers can use credits for GST paid on procurement of inventories. But the end user who purchases the product for consumption will not be able to enjoy and use any tax credit. Cascade tax can be understood from the following example. A tax is applied on a given product at any stage and credit is not available, then tax is levied at each stage in your hands every time a good or service changes. In other words, the tax is applied several times and also pays the fee that is part of the inputs. The following taxes will be applied to the product: While the purchase of inputs ie raw materials for the product, the producer shall pay sales tax. When a wholesaler buys the product from the manufacturer, then you pay tax on procurement of the product. When the dealer buys the product from the wholesaler, wholesaler charging tax again. Finally, the customer purchases the product from the dealer, the dealer again charges a tax.
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This stratification of the sales tax will significantly increase the final sale price of each component in the supply chain increases the price of the product to recover the tax paid. The cascade effect will therefore increase the tax is paid on the tax.
There are a large number of products and range of services that are outside the scope of CENVAT and service tax. The exempt areas can not claim any input tax credit. Similarly, under the State VAT, loans are not eligible for inputs purchased and used at the exempt sectors. Non-eligibility for availment of the tax credits leads to the waterfall. Due to the large number of exemptions, the tax effect of the waterfall in India is significantly high.
b) Complexity - Currently in India, to tax the sale of goods, there is no central sales tax and the respective Acts for each state and territory of the Union. The goods and services will remove this complication by having a unified code for the implementation of state GST in different states. The GST is not only subsume a large number of indirect taxes, but also solve classification problems with the introduction of only one or two tax rates. In addition to this there would be categories that are exempt or zero rated.
Currently the activities of a supply chain are subject to different taxes. For example - the manufacture of goods subject to excise duty and sales of these products is subject to state VAT or CST. The GST tax will only evenly across the entire supply chain.
c) Double taxation - the GST will make no difference between goods and services, GST will be charged at each stage of the supply chain. This will help to solve the problem of double taxation. The problem is not only between taxes and customs duties, excise and service taxes, but also between service tax and VAT. The issue of double taxation is addressed by the honorable Supreme Court in the case of BSNL vs UOI (2006 (3) SCC-1), where the Court held that the activity can not be regarded as both goods and services and, therefore, whether the service tax and VAT should apply the same set of operations.
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The implementation of GST will solve the dilemma of a large number of assesses who are unsure of the type of application of tax on certain specific transactions such as software development, sales of SIM cards by telecom operators, subscription online newspapers, value-added services provided by telecom operators, the right to distribute films, etc.
d) Contracts composites - There are a large number of works contracts involving the supply of goods and services that are available for customers in different ways supply chain. Such situations arise in a gap or overlap in the taxation of goods and services as states have no power to levy taxes on services and the Centre has no power to impose taxes on the sale of goods within the state. In such cases, a complete solution can only be provided by application of GST.
GST and Supply Chains.
The figure below shows how tax is imposed at different stages in a supply chain according to the present taxation structure.
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GST (Goods and Services Tax) was introduced for the first time in 1954 in France. Today it has spread across 140 countries. On 22nd March, 2011, the finance ministry of India placed the 115 th Constitutional Amendment Bill in the Lok Sabha, which was hugely significant as it was about to introduce the Goods and Service Tax (GST) in the Indian Constitution. Introduction of GST marks the most significant reform in Indian economy and the Indian tax system. It has been proposed to introduce GST by April 1, 2012, which is the third such timeline proposed after missing two previous dates. It is a major milestone for the Indian Tax System, which is expected to bring about changes in the way manufacturing, warehousing and distribution is carried out in India. When the talks of GST started in India, many supply chain and FMCG companies reacted quickly and gave a signal to their operations and strategy team to look in to it as GST showed ample opportunities for them to grow with greater margins in the future.
The source system tax in India is multi-layered with taxes at both central and state. Taxes on goods are levied by the Centre on production through CENVAT, service through the Finance Act, and the sale of goods through the Central Sales Act (CST). Been imposed once again tax on sale of assets independently, with its own laws. Although a certain degree of uniformity was achieved after the introduction of value added tax (VAT), differences do persist. There is a cascade effect throughout the value chain in the current tax system. For example, the sales
tax paid to the finished state is levied on all taxes paid at earlier stages, such as customs duty, excise duty, etc. also the planning of the deposits is driven by a logic of saving taxes, rather than to achieve operational efficiency as a CST must be paid in each State passes if it is not through stores. A consumer goods company in a typical country with similar geographical extent as India will have about 5 to 8 stores in developed economies and about 10 to 15 in developing economies. But in India is about 45-50 inventory, which is very high compared to other developing countries and therefore also the margin to a large extent. Even a research report released in September 2009 CRISIL has estimated that the Indian logistics spend between primary and secondary (from the hub to various stores) transport was approximately 10.7% of GDP in 2008-09. This is significantly higher than even those of developed countries, where the average is only 4 to 6 percent. So the extreme intra-industry competition, underinvestment further fueled by thin margins and a punitive taxation are becoming increasingly detrimental to the growth of the country. GST is expected to make the supply chain fiscally neutral by replacing almost all indirect taxes, exemptions and multiple layers of taxation. Would follow the principle of destination, instead of origin. In the GST tax on a final product would be the same position, regardless of structure, production, procurement of inputs, and the nature of the supply chain. So far, the availability of tax exemptions and tax arbitrage in several states (based on fiscal policies) have been the determining factors for companies to structure their supply chains, the patterns of supply and distribution networks. The introduction of GST would have an impact as this presents both challenges and opportunities in all these aspects. In GST, the tax base will shift from production to consumption in which imports are taxed and exports will be exempted from payment of goods and services tax. In India, dual GST should be proposed in which the international exports will be zero nominal imports and international will undergo both Central GST (CGST) and State GST (SGST) at the time of whether the goods are imported domestic production or not. In addition, GST taxation to redistribute evenly between manufacturing and services. It will lower the tax rate and broadening the tax base by minimizing exemptions. Dual GST would create a single market with common tax base and uniform classification of goods and services throughout the supply chain between the states. Consequently, the central GST that has so far been limited only to the phase of production will now be applicable
throughout the chain. The dual GST will apply to all events taxable value of goods and services, not for an amount of production or sales. This will have a significant impact on interstate branch or part transfer inventory in the supply chain so it is very important to how companies are going to re-engineer their supply chains to make it efficient GST. The longer the supply chain will be more points of tax and therefore there will be increased compliance costs. So the challenge for companies would be to compress the supply chain (reducing the number of stores and change positions) for GST efficiency by ensuring that business objectives are met. This would make supply chains more efficient operationally as the reengineering should be based on measures of physical and non-fiscal measures. Companies must restructure their supply chains to neglect border tax and position their warehouses and distribution networks, more focused on cost and time. Thus henceforth need to manage supply chain physical and non-supply chains more tax. Some of the key decisions necessary to restore engineer supply chains to reap the benefits in relation to the TSO would own or outsource services, Inter State and Intra state procurement of goods, production and storage sites, in-house or Contract Manufacturing and Direct sale or transfer of stock. GST is becoming an international standard and, therefore, India should also hold. There are many factors for international companies to choose a country for its activities and the 'tax system' is a very important factor in that. Introduction of GST would attract more investors to do business in India. It would also lead to an efficient allocation of production factors and will lead to gains in global GDP and exports. Vijay Kelkar, Chairman of Finance Committee 13 has mentioned that the proposed GST would benefit the Indian economy at least $ 15 billion (about Rs 73,000 crore) a year. Now 2012 would be the right time to introduce GST in India as is shown by countries like New Zealand and Canada, which introduced GST at the end (1986) and during (1991) a severe recession in their countries and still managed to earn more than expected (due to the impact of GST). The restructuring the supply chain could help manufacturers to transfer these savings to consumers, lowering the price, which in turn increase demand. So, finally, the impact of GST on the supply chain is beneficial to the consumer producer, and the country. A growing market of consumers and tax-law changes make it an ideal time for multinational companies to start setting up supply chains in India. In 1602, when Sir James Lancaster arrived in India, the commander of the first commercial shipment of the East India Company, the economy of the Indian subcontinent dwarfed that of
the British Isles. What many people in the West do not realize is that, except for the last 500 years, this has always been so. What account is even less likely to be true again. A huge population, educated and motivated by access to capital, for example-India's require a strong economy, and India is regaining its traditional role as an economic power. Considering the bright future that lies ahead for India, is now a good time for companies to develop their supply chain strategies to serve the country. India, 7 percent growth rate for its gross domestic product (GDP) may not be how to capture the attention like China. But India is the second fastest growing economy in the world, and is more diversified. Its burgeoning middle class is employed in a wide range of business services, leading some experts to believe that India will be more resilient in the current economic crisis in China. The Indian government has begun to implement tax law changes that will make delivery of goods to consumers and businesses more efficient, making products more accessible and stimulating demand. The government is also gradually lowering the barriers to foreign direct investment, and soon retailers will be able to operate in India taking positions in the majority of Indian companies. Although India has a huge and growing market for products from outside, creating a distribution network presents a number of challenges in areas ranging from infrastructure to human resources, from site selection to take stock of a truck driver confidence . These challenges should not discourage companies from expanding in the country. Rather, they simply should motivate companies to start their planning now. Based on our experiences in India, we believe that if a company starts to navigate the obstacles now will be well positioned to reap the benefits when government regulation and economic reforms finally align behind this huge consumer economy. Breaking down the barriers to investment India has always offered the most attractive investment opportunities, as it does now. When India has established its republic in 1950, the government strictly controlled the economy. The country began to move toward the freemarket economy in 1990, and 1991, the government began instituting a series of economic reforms designed to open up its markets and eliminate some restrictions on foreign trade and investment. These reforms have encouraged the development of a growing middle class with an interest in Western-style consumer goods. This young, highly educated segment of the population will continue to lead
the economic boom in India. In fact, in a 2005 A.T. Kearney survey, world leaders have rated India as the largest consumer market opportunities, putting it second highest foreign direct investment in the consulting firm (FDI) Confidence Index. Indian fiscal system state historically has hindered the creation of regional distribution networks. Many of the 28 states and seven Union territories that make up the federal state of India has imposed a local sales tax, known as CST (for Central Sales Tax), the goods produced. The CST is the primary source of income for some of these state governments, for which application is rigorous, state border guard towers are a common sight, and vehicles are required to stop and pay a fee to gain admission to many regions or municipalities. The CST is applicable when moving goods between Member States as well as when the goods change owners. (Transfer of stock among internal warehouses of a company, however, are not subject to the CST). This has motivated most of the big companies in India to have stores in every major state. As a result, consumer goods companies cannot be easily centralize their inventory. Instead, typically use a series of small stores to get the products in various markets, and then turn the goods to local distributors and small retail stores. This practice, of course, adds more inventory, handling and transportation costs to products. Fortunately, this situation is about to change. The government plans the CST completed by March 31, 2010, in preparation for a couple of domestic goods and services tax (GST). The GST is intended to integrate the national taxes and duties on goods and services at both state and federal levels. As a result of this change in tax structure will become cheaper for companies to establish a distribution network with a central or regional warehouses. With the promise of a more cost efficient distribution network and a large base of consumers clamouring for goods, more businesses can be encouraged to enter the Indian market. Before diving in this complex environment, however, need to understand clearly and plan for the deployment challenges they will face. The warehouse scene While the regional distribution centers promise greater efficiency and effectiveness, few facilities in India today could fit the bill. Called "godowns," most Indian stores owned by multinational companies are small, between 5,000 and 25,000 square meters, compared to 250,000 - up to 1 million square feet of facilities in the United States or Western Europe. Existing Indian deposits are usually located near a customer base and bring only enough
supplies to serve customers. Department stores are rare, because there was little demand for the storage of huge volumes of product to date. Most Indian stores have few racks for shelving the product and are likely to have the dirt rather than concrete floors. This means that they use space inefficiently, and their management is more complex because there is little in terms of technology or equipment for material handling. The "system of inventory management" in these small sites is a library full of three-ring ring binder notebook. Each notebook contains documents received for one or more products. When an order is received, someone seeking the positions of the elements required in these notebooks. The loading docks and receiving these small sites are alive with activity. Without forklifts, conveyor belts flex and / or dock levelers, everything is passed from hand to hand for storage inside the truck. These types of stores employ three to five times the number of persons who would be expected at a Western structure of similar size. This does not mean that the stores do not have the technology. Often do, but is usually used for the benefit of the customer and not for the management of the facility. For example, one of the authors visited a third party logistics (3PL) warehouse that was exactly as described above. The store has a computer terminal that has been linked directly to production planning in the local car factory resource (MRP). Warehouse employees would print out the order and then go to the library, look up the location of storage required, and then go get him. Three other people would update their records. The warehouse buildings are generally more modern prefabricated steel structures, with steep pitched roofs to divert water away during the monsoon season. In addition, many distribution services are housed in structures that are designed for other purposes. For example, one of the largest pharmaceutical distributor in Mumbai operates a warehouse outside the third floor of a building. While construction of new infrastructure may be the only possible approach for the development of large regional distribution centers, finding land for those two, three, or five plants will be difficult. Earth may be expensive in some parts of India. For example, land on the outskirts of Mumbai's most expensive area in suburban Atlanta, Georgia, USA. In addition, there are few large landowners in India. As a result, the purchase of a plot of land
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big enough for a large distribution center will likely need to negotiate with hundreds of individual plot holders. Even the influential National Automotive Tata Motors has had trouble finding land for a planned factory in West Bengal. To obtain the required 997 acres, the company has had to work with the state government to consult with 13,000 farmers and pay them for their land or the right to use their land. But it was not the end of the problem of the Tata Estate. Farmers have complained that their compensation was too low and that some of them were forced to sell their land. In response, the car moved to another building, in less hostile region of the country. Large national retailers such as Reliance Retail Ltd., have had similar problems. Because of problems related to land acquisition, most companies entering India and the adoption of a regional model network should consider a partnership with a third-party logistics company that already has a store or on the ground which you can build a plant. An important consideration, of course, the quality of service offered by this operation. Few international 3PL warehouses operating in India, and some local logistics service providers are just becoming familiar with the service expectations of multinational companies. Yet, for some businesses, in partnership with a 3PL will be easier than going it alone. Fund design Once the ground has been found, the actual construction and design of a new carrier storage another set of challenges. A company wanting to put on a building westernstyle walls and concrete floor would have to work closely with local contractors (supplemented by Western experts) to realize such a project. Only by pouring a concrete floor that meets accepted standards of Western construction requires very close supervision. Consequently, it is not uncommon to find high-throughput facilities with plans that have recently shed full of cracks. One person interviewed for this article described a retail store that is less than six months and had cracks so large that a truck was stuck in one of them. When it comes to design of structures, foreign companies in India tend to adopt one of two extremes, neither of which is advisable. Some want to replicate their Western buildings. But a regional distribution center should look different in India than in Western Europe or the United States, India has its own unique set of strengths and constraints. At the other extreme, some companies think that because labor is so cheap in India, may waive automation and technology. The danger of this perspective is illustrated by a meeting
we had with Mukesh Ambani, head of Reliance Industries and India's richest man. When we revealed our plans for distribution centers that serve its new retail business, there was hardly any automation in the solution. Ambani expressed his concern. "You western experts always tells me that automation is not justified here because people are so cheap," he said. "After telling me this, and fly home, after two years, I have to rip everything and automate for quality." When the structure is very small and not too complicated to manage, it is acceptable to rely on manual labor, and assume that the local managers and warehouse employees can not understand how to store and transmit to the product. It is unlikely that this work, however, when a company tries to put together a great operation. Operations management experience is not as well developed among Indian warehouse managers and employees, as in the West. The lack of management skills combined with the large stock of complexity of a manual, but at high volume seems destined to lead to inefficiency. In our experience, we find best to adopt a "middle of the road" approach to high-volume design of structures using some warehouse automation, but still rely on workers for most of the less complex tasks. The software can help to ensure the quality of the operation because it can impose discipline and provide data for measuring productivity. Warehouse management software, for example, can influence and improve the performance of the workers. When warehouse workers receive instructions from a computer, the computer, not a human being, directs the pace of instruction and follows the pace of completion, which minimizes the cultural problems that may arise due to different expectations and priorities. This same approach should be used with material handling. For example, in structures at high volume, carriers are required to obtain products and cartons in which they need to be in time. But companies do not need to use an expensive motorized conveyor with complex controls and diverts automatic chutes. Instead you might consider using simple manufacturing, motorized conveyor and workers manually divert the products or cartons. This strategy helps keep costs down in other ways. At present, it is very expensive to bring equipment for the handling of materials in India from abroad. Each imported forklift, conveyor, rack, or other equipment is subject to at least a 30 percent import duty. (See Figure 1 for a sample of accounting for taxes and import taxes.) This, of course, encourage businesses to plants from Indian suppliers. Sometimes it is also possible to bring in less complex equipment (such as decanting) from China. Chinese products generally cost a little
'less than the equipment of domestic production, even with the duty added, and cost much less than the U.S. and European equipment. Strategies for Personal The challenges do not end once the plant was designed, built and equipped. In fact, it is noteworthy that the largest market for consulting services logistics in India is not for the design of warehouses and distribution centers, but to help teach people how to operate them. In a country where the average worker earns U.S. $ 500 a year, it is tempting to follow the practice of the United States to recruit personnel inventory levels by the least educated segments of society to save money. We strongly recommend against it. The skills gap between educated and uneducated people is much higher in India than it is in the West. Some concepts and equipment that Western companies take for granted, like computers, are totally unrelated to the ignorant segment of the Indian population. For this reason it makes more sense to hire people with college education to manage their warehouse standards, although they may ask for more compensation. College-educated workers have the basic knowledge needed to operate a computer or a forklift. Another reason to hire young, college-educated workers is that it minimizes cultural clashes. The Indian culture has historically emphasized hierarchy and social status. These cultural beliefs can be inhibiting to Western companies that are used to a more open style of decisionmaking process, in which employees discuss work problems with upper management. Young workers, however, are more willing to adapt to this style of management. Transportation challenges Looking beyond the four walls of the distribution center, companies will need to design a distribution network that takes into account the realities of transportation infrastructure in India. India supply chain has to deal with transit networks slow and insufficient infrastructure. For example, 70 percent of India's maritime trade is run by only two major ports of the country 12. The rail system is also constrained when it comes to movements of goods. Historically, the ability to guide the country has been limited to passenger traffic, and people have protested the use of rail for freight. Only recently the Indian government has begun efforts to promote rail shipments.
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Most commercial expeditions to India on their way to board a truck (even if it is not uncommon to see freight hauled through town on a cart). Take a motor carrier means working with a small transport company, as the country has no major domestic shipping companies and only a handful of medium-size carriers. A recent study conducted by the Indian trucking industry consulting firm Orkash Services Pvt. Ltd. has found that most carriers had fewer than five trucks in their fleets. The fact that the largest association of trucking in India, the All India Motor Transport Congress, says that represents 4.8 million truck owners is further evidence of the preponderance of very small operators. These carriers do not have specialized equipment such as refrigerated trailers. A company that plans to enter the Indian market and in need of specialized services can then consider working with a large carrier that can collaborate with local trucking companies. The same trucks are typically 24 feet long vehicles can carry 12 standard Grocery Manufacturers of America (GMA) pallet, which are 48 inches long by 40 inches wide. The 53-foot trailers that are common in the United States have been released in India and would not be able to do so through the crowded narrow streets to pick up or drop goods. Timing of deliveries and pick-up can also be difficult. Currently, most stores are located in the heart of Indian cities, and many communities prohibit the movement of large trucks during daylight hours. And 'possible to negotiate special exceptions in some places, but in general, shippers should plan on night time movements. Another option is to download large shipments to cross a river outside the city and transfer orders to smaller vehicles for delivery. Transit times are slow and unpredictable than those of Western countries. A journey of 1000 miles from Kolkata (formerly Calcutta) to Mumbai could take up to seven to 10 days because of delays at state border and poor road conditions. In fact, the study reported that a truck Orkash typical in India covering an average of only 300 km (approximately 186 km) per day. The average truck in a country with a better road system can travel 800 kilometers (497 miles or so) in one day, the researchers found. Moreover, technology is often used in the West to reduce the variability of transit is not yet common in India. Trucking companies in India are just beginning to release drivers that can use mobile phones to call the status of shipments, and global positioning systems (GPS) are virtually nonexistent. To reduce the impact of the variability caused by poor logistics infrastructure, suggests Abraham Joseph of the consulting firm Chainalytics, companies should adopt inventory strategies similar to those used in small parts of the service industries. Service-parts industries
use inventory to buffer against variability of the application, rather than against the variability of transport, but the structure of the resulting network is the same. Companies will have to stage inventory throughout multiple levels, or spheres, of the network to reduce the impact of transportation variability and high transportation costs. So instead of shipping from a regional distribution center, in a state to wholesalers in several states and cities, a company may still need to keep a small amount of stock in each state to maintain service levels. Plan to take action now Clearly, one of the biggest challenges for any company that wants to develop a supply chain in India is learning how to serve customers and, despite the challenges and roadblocks to efficiency discussed in this article. That said, the government began to invest heavily in sectors such as transport infrastructure and regulatory reform, and these future enhancements to support companies' efforts to run an efficient supply chain in India. In our experience, a company can reasonably expect to spend at least five years creating a distribution network in India due to the complexity of navigating these challenges in India and comply with laws and regulations. But, as we noted earlier, the opportunity to serve the world's second fastest growing economy and rapidly growing, educated middle class, is not to be missed. If companies act now and start developing their plans for supply chain, they will be able to participate in the prosperity of India. During the design and implementation of supply chain, most corporate executives take into account the factors that are familiar with such factors as the intensity of competition and the preferences of their customers. But now with the explosive demand for the Indian market is witnessing and the forthcoming introduction of the goods and services tax (GST), it becomes imperative for companies to reassess their structures and supply chain strategies.
The GST will significantly improve logistics efficiency. It will hasten the movement of goods across India with a single "consumption tax" structure that replaces the current multiple tax system, including central excise, VAT and service charges of the state - the sum of which can add up to 30 per cent to the manufacture cost. If manufacturers can align their supply chains with the new tax structure, you can expect to see real benefits from cost reductions at every point in the supply chain savings that will help them become more competitive. At the very least, the alignment with the GST will give producers the opportunity to lower prices. India to
reach fast-growing markets in a flexible and cost-effective and fully exploit the impending changes in the tax structure, supply chains need to improve on three fronts: physical terms, financial, and information flow that underlies all supply chain transactions. GST activity provides an opportunity to re-design the supply chain independent of the tax implications. Some important questions are the following: Supplier Sourcing and purchasinga) Which providers should deliver to which production site? b) Which category should we buy from each supplier? c) The suppliers can be consolidated? d) It can be re-negotiated purchase prices with suppliers? e) How will the long-term contracts with suppliers to be affected?
Productiona) What should be places of production? b) What should we produce at each plant? c) Do not we move / expand / remove existing structures? d) We should go for contract manufacturing or production car? e) How will this change the competitive landscape and how this should impact our manufacturing strategy?
Transport and distributiona) DC What we need? b) What are the markets and products should be used?
c) Where is the new DC? d) In case we have a factory in DC? e) What is the optimal product flow? f) direct shipments or stock transfers? g) Who should be my logistics partner? h) We need to consolidate stores?
Customers and Marketsa) What groups are my current and future demand? b) How should we design our logistics network to better serve new geographic areas? c) We need to re-pricing our product? d) How does my work changes the capital requirement?
Warehousinga) What is the best option - the owner of the store or location? b) What will work better - and management themselves or outsource?
A simulation was done using real data of the Supply Chain of a large CPG company Two scenarios were performed maintaining the same supply and demand, changing the structure of taxation Scenario 1 is according to present tax structure and Scenario 2 is consistent with the model GST. Key Facts No. Of DCs Scenario 1 23 Scenario 2 17
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1 day service level
81.10%
80.60% 32 676 4.62 4.16 ------------135
Days of inventory 45 Total sales Primary Freight 676 4.82
Secondary Freight 3.42 CST Excise VAT GST 0.88 57 85 -----
* Al figures in crores * 1 day Service Level => 250 kms distance travel for secondary freight * GST assumed at 10% State GST and 10% Central GST * Primary Freight Cost is the transportation cost between the plants and the warehouses * Secondary Freight Cost is the transportation cost incurred between the warehouses and the customers
Result of the simulation concludes that There is a reduction in the number of warehouses required to have the same service levels There is a reduction in primary freight cost due to consolidation of freight Secondary freight cost increases because of increase in the weighted average distance between the warehouse and customers In the present tax structure, CST, Excise and VAT are the main taxes levied. These are proposed to be subsumed in GST
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The GST will begin to make a difference to decisions about the physical supply chain, freeing managers having to locate production bases and distribution networks, with tax benefits rise in the mind and allowing them to think of operational flexibility and efficiency from the point the customer's perspective. As such, the GST will make national entrepreneurs in equilibrium with the importers who do not need to pay taxes on consumption.
The new tax would reduce the number of stores that manufacturers are required to maintain in different states, leading to a considerable increase in demand for integrated logistics solutions. It 's very likely that companies will move to newer and more centralized hub and spoke model of distribution.
The growth opportunities for 3PL players are expected to come mainly from stock, which is likely to be driven by the implementation of VAT. At the same time, reduced documentation and lower costs probably 3PLs make more efficient. The benefits would show when the central sales tax is abolished. It is expected that the international giant retailers like Walmart and Carrefour will stimulate the growth of 3PL by making use of those services required for their suppliers.
The financial supply chain that supports the supply chain is just as tangible difficult for entrepreneurs. Fees collected by the agents carry-and-forward (CFA) are a burden. Access to credit remains a challenge. And India is a complex tax structure particularly expensive. Sales taxes that vary from state to state means significant diseconomies of scale for providers of logistics trans-service status. Even value added tax (VAT) was implemented on 1 April 2005, was not applied uniformly in all States. At the same time, the transport companies in India have to pay taxes and various other octrois, and deal with multiple checkpoints. Complies with the requirements of various tax records of several states adds costs and delays: on average, a vehicle on Indian roads loses between 24 and 48 hours after the documents and formalities at checkpoints along the way.
The introduction of the GST in its current form is set to benefit from the cash flow.
First, the costs of physical capital to labor tends to decrease as GST would be paid at the time of sale or supply, and not at the time of manufacture.
Second: The GST is expected to do away with the excise duties on production. And the new tax would open a wider availability of credit in inter-state transactions, a powerful lubricant for trade.
The GST will manage cash flow more efficiently, as it will allow companies to request input from the obligations GST credits. Moreover, they can pay taxes with the central provision of GST (CGST), was SGST (SGST) and interstate (GST IGST) claims against the state or central government. Since the GST payments on cash flow, it becomes essential to decide whether to opt for the cash and accrual accounting. For example, if one considers the time of availability of input tax credits, cash principle applies to all payments actually made by the producer during the period of competence, as it relates to all invoices issued to the company that period. And when it comes to times the liability to pay GST, cash accounting is applied to all payments actually received during the relevant period, as it relates to all invoices issued during the period.
The GST will affect the availability of working capital. In the case of transfers of stock photos, working capital would reduce the GST is applied during the transfer of shares, but credit is given only when the stock is sold. The input tax credit (ITC) available can be used only at the end of the supply chain, after the goods are sold, which is a function of the anniversary of the delivery company. Compared to the current scenario, the GST would delay the realization of money, reducing working capital.
The new tax will also increase the need for working capital. Will be payable in lieu of service fee. Similarly, it is above the current duties. Although the credit for these taxes may be required downstream, more capital will be needed if GST is superior to existing tax rates.
Any credit not used for the CGST (8 percent) and SGST will be refunded at the end of the fiscal year, which means that money in the form of credit used would block until the fiscal year closes. In addition, tax exemptions currently available will be converted to a cash refund, raising working capital requirements.
These days, those who run global supply chains are in tune with the need to make their supply chains more efficiently and effectively as possible. They use tools to "see" very high or down the supply chain to detect the end-customer demand or supply constraints and to help synchronize the activities in order to reduce costs and speed up responses to fluctuations in demand.
However, India does not have much of a supply chain of information to talk about. Little is known about what buyers of the data and the use of suppliers, not to mention what information to share. The use of technology is rather limited, and the solo nature of the logistics industry effectively blocks easy dissemination of vital information on shipping times, bills of lading, order, precision, and much more. The lack of information creates uncertainty, unnecessary paperwork and delays. The fragmentation of the industry creates another vicious circle: It makes it much harder for technologies such as global positioning system (GPS), vehicle tracking and radio frequency identification (RFID) to take hold.
India understands that entrepreneurs need to be able to capture and analyze information related to customer needs and use it to improve its products and services to remain competitive. So they are eager to assemble the collection of information and communication technologies necessary to collect information from discrete processes, to transform from data into knowledge, and distribute this information efficiently and in a timely manner to the appropriate data consumers.
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The GST will help to enrich the supply chain of information. It will eliminate the need for agents to CFA as firms will no longer have to worry tax due to inter-state transfers. This will help to make information more visible up and down the supply chain and facilitate the integration of processes for sharing data, such as signals of demand, inventory levels, alternative transportation routes, etc. - a decisive advantage in terms of demand planning and inventory rationalization. Moreover, with stocks aggregates to a smaller number of stores, the information management can improve, which in turn improve the planning and the availability range. In fact, CFAs can now become bona fide third-party logistics providers. At the same time, customer demands for more value-added services will increase the adoption of technological solutions, such as warehouse management systems and track-and-trace offerings.
Comparison of taxation in supply chain as per present tax structure and as per GST.
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Comparing both the figures we can clearly figure out how will GST effect the supply chains.
For further making it more clear the table on the next page clearly shows how implementation of GST will reduce the cost along the supply chain and it will be beneficial for all the parties involved in the supply chain.
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Some other considerations in regard to GST

This is not the place to go into the finer points of taxation. Suffice it to say that the GST will result in a form as soon as possible even if it is still the subject of passionate debate and discussion at the state and GOI, and even if the structure is faced tax hurdles before, during and after implementation. Some issues still hashed out are:
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The uniform law for the collection of taxes at the state and central, as well as binding agreement between States to prevent unilateral changes in their respective legislation. It will also be incumbent on the government to protect the interests of States that have potential revenue.
Octroi and state permits will still be present in the new regime, and thus may be an impediment to the following implementation of the GST.
Currently, there is little discussion on the training of field officers to ensure the proper administration and implementation of the GST regime. Nor does it appear that there is a strong technological foundation of credit facilities to support the implementation of GST. The main point for entrepreneurs is that the GST is on track, and should be ready to use it as a fundamental logic to transform their supply chain. Here are several logistics initiatives that can now be considered.
Designing a multi-tiered distribution network to reduce the impact of unreliable transportation. Manufacturers will probably need to adopt multi-echelon networks covering local, regional and central points. Since the GST may allow a reduction in the number of deposits, companies can consider efficient distribution models hub and spoke. One of the main operators of the Indian communications industry is currently experimenting with this mode.
Develop strategies that require inventory for the staging of multi-echelon inventory network. This investment would create an additional flow capacity, as a resting place. It is expected that this investment would offset current high transportation costs.
Partner with a rapidly growing 3PL provider expertise with proven supply chain planning and skills in areas such as management of warehousing and distribution centers, after-market
distribution, fleet management, logistics and network modeling. Major international players in the industries of electronics, communications and cosmetics are already working with leading 3PL in India to be ready for future challenges. The major Indian companies in the fields of energy and resources are partnering with the 4 th party logistics providers, thereby leveraging the expertise of both 3PL providers as well as major consulting firms and technology.
Building major logistics teams 'field' - in the markets it serves. The teams would be responsible for: scoping out and build relationships with service providers in the region, which set the criteria for selecting partners in the supply chain; be familiar with interstate regulations to remove procedural snafus, and manage local activities.
Take advantage of growth in the telecommunications sector and invest in technology that allows for better monitoring and reporting. Most Indian companies have already begun using techniques such as palletizing and are now turning to technology tools such as warehouse management systems software. The next wave of technology that should involve the use of RFID to track pallets and disposable and GPS vehicle tracking, particularly in the food and fast moving consumer goods (FMCG) sectors.
Increase the use of resources through the construction of a shared space for storage, distribution and transportation. This investment could reduce costs in the short term, but could also be a source of additional income in the long term, when the maturity of its supply chain is established. 3PL should be important players in an effort to best use goods. Some FMCG companies are already moving in this direction with their 3PL partners.
Making use of cross-docking techniques. With the start of the GST, businesses require much less documentation for inter-state movement of goods, making it an interesting crossdocking further reduce costs. The major global players in electronics and communication have been doing this for many years outside of India. They are now ready to apply the same techniques of distribution networks in India.
Conclusion
By studying and analysing the above material on GST and its implementation in India we can sum up the impact of it in following points:GST will be beneficial in removal of cascading effect of taxes through the entire supply chain, reducing the cost of doing competitive. business and making the economy
It will help in deleting multiplicity of taxes, rates, exemptions and exceptions.
Elimination of the double taxation of the same transaction (eg VAT & Service tax on EPC (engineering, procurement and construction) contracts.
It will help to reduce production costs.
It will ensure achievement of uniformity of taxation throughout the territory, regardless of place of production or distribution.
It will provide greater certainty and transparency of taxes.
GST will ensure the fight against tax evasion throughout the economy.
Increase and create buoyancy in the economy. GST will provide the opportunity to redesign the supply chains to ensure maximum profitability. It will provide the opportunity to companies to decrease the number of warehouses while having the same service level. GST will also enable companies to modify its supplier contracts.
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When the GST finally takes effect, its initial impact will be to hike supply chain costs. Companies must maintain parallel networks and invest in new equipment, truck owners will almost certainly purchase large capacity vehicles, and most of them. Besides this, the government's fiscal infrastructure might not be ready to pass the GST credits.
However, GST offers an unprecedented opportunity to improve the efficiency of the supply chain across India. It will help to improve operational performance in small and medium enterprises as well as large national and international. It will help many of the largest companies in India to bridge the gap with their global competitors in crucial functions that, until now, have had relatively little power to improve
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Bibliography
(2010). Retrieved March 23, 2012, from www.supplychainquarterly.com: http://www.supplychainquarterly.com/topics/Global/scq200901india/ A Deloitte Report. (2009). Optimizing the Supply Chain in India: Promise and Peril. Deloitte Development LLC. An Accenture Report. (2011). Goods and Service Tax: Responding to an unprecedented opportunity to transform supply chain performance in India. Accenture. CA, R., & Adkula, S. (2010). A STUDY ON PROPOSED GOODS AND SERVICES TAX [GST] FRAMEWORK IN INDIA. Forum4Finance. (2010, May 28). Retrieved March 26, 2012, from www.forum4finance.com: http://www.forum4finance.com/2010/05/28/gst%E2%80%99s-impact-on-supply-chain-tax/ HindustanTimes. (2011). Retrieved March 26, 2012, from www.hindustantimes.com: http://www.hindustantimes.com/business-news/WorldEconomy/q-and-a-what-is-gst-tax/Article1676174.aspx ILoveIndia. (2011, January). Retrieved march 25, 2012, from www.iloveindia.com: http://www.iloveindia.com/finance/encyclopedia/goods-and-services-tax.html InfosysBlogs. (2010). Retrieved March 25, 2012, from www.infosysblogs.com: http://www.infosysblogs.com/logistics/2010/11/gst_impact_on_logistics_indust.html MaritimeGateway. (2011). Retrieved March 26, 2012, from www.maritimegateway.com: http://www.maritimegateway.com/mgw/index.php?option=com_content&view=article&id=46:india -after-gst&catid=51:article&Itemid=126 OpepIIMRaipur. (2010). Retrieved March 25, 2012, from www.opepiimraipur.com: http://opepiimraipur.blogspot.in/2012/01/impact-of-gst-on-supply-chain.html Poddar, S., & Ahmad, E. (March, 2009). GST Reforms and Intergovernmental and considerations in India. Government of India. The Empowered Committee of State Finance Ministers. (November, 2009). First Discussion Paper on Goods and Service Tax in India. New Delhi: Government of India. Wikipedia. (2010). Retrieved March 26, 2010, from www.wikipedia.com: http://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28India%29
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Impact of GST On Supply Chains in India: MBA (Logistics & Supply Chain Management)

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IMPACT OF GST ON SUPPLY CHAINS IN INDIA

MBA (Logistics & Supply Chain Management)

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Motivation/Need for Research

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

History of taxation in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Value Added Tax

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Increases and creates buoyancy in the economy.

Background of goods and services tax (GST) in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Need For Goods and Services Tax in India

Impact of GST on Supply Chains in India

Why GST is the preferred tax structure?

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

GST and Supply Chains.

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

1 day service level

80.60% 32 676 4.62 4.16 ------------135

Days of inventory 45 Total sales Primary Freight 676 4.82

Secondary Freight 3.42 CST Excise VAT GST 0.88 57 85 -----

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Some other considerations in regard to GST

Impact of GST on Supply Chains in India

It will help in deleting multiplicity of taxes, rates, exemptions and exceptions.

It will help to reduce production costs.

It will provide greater certainty and transparency of taxes.

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

Impact of GST on Supply Chains in India

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