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GST - IMPACT ON SUPPLY CHAIN MANAGEMENT

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GST - IMPACT ON SUPPLY CHAIN MANAGEMENT

  1. 1. JAI KUMAR CHORARIA GST IMPACT ON SUPPLY CHAIN MANAGEMENT
  2. 2. SUPPLY CHAIN MANAGERS BALANCE TOTAL LOGISTICS COST FACTORS AGAINST CUSTOMER SERVICE FACTORS
  3. 3. STRATEGIC TACTICAL OPERATIONAL Procurement Manufacturing Distribution Logistics Supply Chain Planning Decisions
  4. 4. 5 1. Intrinsic to the Organisation 2. Market Specific Forces 3. Fiscal in nature SUPPLY CHAIN IS IMPACTED BY SEVERAL FORCES :
  5. 5.  Sale of Consumables within a state – How to minimise tax liability.  How to procure Raw Materials, Packing Material, Consumables in a most tax effective manner to reduce Landed Cost  How to maximise Post Tax Return  How to maximise Value Addition in Supply Chain DRIVING FACTORS OF SUPPLY CHAIN
  6. 6.  Increased International Competition.  Larger Revenue required for physical & social infrastructure.  Accelerated Economic Growth is possible only in Conducive Tax Environment. TAX REFORMS IMPERATIVE FOR COMPETITIVENESS & GROWTH Previous complex multiple tax structure not conducive for growth and competitiveness.
  7. 7. TAX EFFECTIVE SUPPLY CHAIN It is the integration of tax planning into business and value chain restructurings that may involve the relocation of assets, functions and risks across jurisdictions. Increased profit after tax and therefore shareholder return above the line Improved supply chain management accessed through the creation of centrally controlled strategic and tactical operations. An ability to leverage procurement scale.  Improved tax risk management
  8. 8. 1. TRANSIT TIME  The GST will help reduce the transit time for cargo  Border check posts will phase out resulting in improvement in operational efficiency  Quicker and increased number of deliveries along with reduction in logistic cost during the transit  As per world bank estimation Indian corporates can save up to 30-40% of logistic costs incurred due to stoppages at various tolls and check posts.  A 2015 joint report by the Transport Corporation of India and the Indian Institute of Management – Calcutta (TCI-IIM-C) shows that the stoppage expense (average expense incurred due to the stops along the way such as check-posts and customs) per tonne-km has increased from ₹0.16 per tonne- km to ₹0.28, a 75 per cent increase between 2011-12 and 2014-15.  The taxation by State authorities at checkpoints is one of the main reasons for this rise in cost. This will come down and should further increase the speed of cargo movement.
  9. 9. 2. WAREHOUSING  Logistics companies in India, until now, have been maintaining multiple warehouses across the states to avoid the Central Sales Tax (CST).  They would then avoid CST and simultaneously avail input credit obtained through value-added tax.  Most of these warehouses are operating inefficiently and certainly not to their full potential.  India is now becoming one single market wherein goods can move freely inter-state without any levy, these obstacles will be taken care of. Before GST, goods would incur 2% CST when they are manufactured in one state and sold in another. To avoid this industries would transfer goods to warehouses set up in each state from where the sales could be made.
  10. 10. 3. OPERATIONS COSTS  Until recently, each of India’s 29 states taxed goods that moved across their borders at different rates apart from that, Corporate state tax of 2% was levied for inter-state goods transfer. This is the Pre-GST tax structure.
  11. 11.  No varying tax structures are allowed across states under GST.  Interstate taxation had resulted in a large number of unorganized players in this industry. Thus, resulting in fragmented industry.  With the introduction of GST, there is likely to be major consolidation in the industry.  It could see the emergence of major large players who can span the entire logistics chain.
  12. 12. OBJECTIVES OF TAX BASED SCM Increased profit after tax and therefore shareholder return above the line. Improved supply chain management accessed through the creation of centrally controlled strategic and tactical operations. An ability to leverage procurement scale. Improved tax risk management. Aligning Tax and Business considerations across the supply chain. To enable the companies to evalute, design and implement changes to their Supply Chain that integrates Tax with Business Objects. To ensure Tax enhanced operational benefits and to reduce overall risk profile.
  13. 13. INTEGRATION OF TAXES INTO GST Central Taxes - Excise duty - Service tax - CVD - CST - Various Cess - Addl Customs Duty State Taxes - State VAT - State Excise - Luxury tax - Entertainment tax - Entry tax
  14. 14. GST IMPACT ANALYSIS GST SUPPLY CHAIN CASH FLOW TEXT BOX IT SYSTEMS FISCAL IMPACT
  15. 15. 22 SUPPLY CHAIN IMPACT INTERSTATE SOURCING OF RAW MATERIALS PRICE NEGOTITATIONS IMPROVEMENT IN QUALITY BETTER FORECASTING IMPROVED INVENTORY MANAGEMENT BETTER TRADE-OFF BETWEEN COST & CUSTOMER SERVICES CAPACITY EXPANSION GREATER FLEXIBILITY IN MANUFACTURING
  16. 16. CHALLENGES AHEAD – CREDIT DETERMINATION ON INVENTORY – CREDIT IN RESPECT OF SEVICE TAX ON LOGISTICS SERVICES
  17. 17. SPECIAL UNIT IN THE STATE OF MAHARASHTRA
  18. 18. CST/VAT 41 CR SALES 1000 CR 80% INTER 20% INTRA PRE GST-REGIME
  19. 19. GST 18CR SALES 1000 CR 80% INTER 20% INTRA POST GST-REGIME
  20. 20. CONCLUSION • The impact or rather the opportunity is huge for both the logistic company and their customers to completely relook at their supply chain. • This essentially means a significant opportunity for Logistics companies in India to revise their infrastructure to deliver as well as reverse logistics for spares and replacements. • GST is a Win Win solution for all stakeholders. • It is a key enabler for increasing prosperity.
  21. 21. 31 Thank You

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