There was a lot of hoopla around the introduction of GST bill in parliament recently. GST in simpler terms is a value added tax that will replace all the other existing indirect taxes. Currently, a product being transferred entails an excise duty, VAT, central sales tax and octroi in some cases as well. With implementation of GST, the cascading effect will be eliminated. Let us study the impact of implementation of GST on supply chain:
1. Reduction in transportation cycle time:
Check points at state borders impact the logistics time as the material scrutiny and tax compliance checks account for 60% of a truck’s transit time. A common market under GST would help in the smooth flow of goods.
2. Consolidation of warehouses:
Currently, organizations operate with multiple warehouses in different states as they negate the Central Sales Tax by declaring the transfer of goods as stock transfer to one’s own warehouse for inter-state sales which is not taxable. With introduction of GST, there would be a uniform tax and organizations can start consolidation of warehouses. This would also help by lowering the administration costs in a multiple warehouse strategy. In future, this would lead to formation of warehouse hubs and logistic routing pattern will see a shift.
3. Improvement in service levels:
GST regime would influence the emergence of organized service providers since indirect taxes will not be added for doing business. This would lead to improved service levels. 3PL partners in unorganized sectors would be required to improve on their service levels.
4. Lowering of costs:
With consolidation of warehouses leading to optimization, inventory costs will come down. The reduction in delivery time would also help by lowering distribution costs. These factors will lead to decrease in the final price of goods.
5. Distribution changes:
Introduction of GST will see a phased reduction of the clearing and forwarding agents. Also, distributor setup and territory allocations will see a relook.
-----------
About the Author:
Abishake Koul graduated from BIT Mesra in 2013 and had a 2 year stint with Maruti Suzuki before joining IIM Lucknow where he is a part of Media & Communication Cell. His hobbies include writing, poetry and running.