Group Project Impact of GST On Supply Chain Management

Impact of GST on Supply
Chain Management
S u b m i t t e d B y:
Arpit Shah
Mohit Dhanawat
Prashant Saxena
Ro o p an s h J a in
Supply Chain Management Impact of GST on Supply Chain Management
Table of Contents
Executive Summary.................................................................................................................................3
Supply Chain Management......................................................................................................................4
Tax System..............................................................................................................................................4
Indirect Tax in India.............................................................................................................................4
Goods and Service Tax........................................................................................................................5
Simulation on the effect of GST on Supply Chain...................................................................................7
Possibilities of Tax Rate..........................................................................................................................8
How GST can influence the Supply Chain Management of a company..................................................9
Without GST/ Present Tax structure....................................................................................................9
With proposed GST...........................................................................................................................12
Warehousing strategy-Should we change or not?..................................................................................15
Special Scenario Managing the Product Transfer within Internal Divisions.......................................17
Expected industry response to GST.......................................................................................................18
Conclusion.............................................................................................................................................19
References.............................................................................................................................................19
Page | 2
Indian Institute of Management Rohtak
Executive Summary
Government of India is proposing to substitute the present tax system VAT and Excise with GST (Goods
and service tax). There would be common tax for all goods or services being consumed or availed
respectively (CGST, SGST and IGST). At present, companies have aligned their policies and operational
strategies as per existing tax structure. With the change in the whole tax structure in India, many
industries may have to change their supply chain strategy. Companies will try to align themselves with the
change to minimize the tax or fiscal cost.
Tax factors will play a role in deciding which state to set the warehouse in, what mode/route to follow for
a particular state, whether to have a dealer in separate state or have a warehouse as the differential tax
rates may affect these factors.
A scenario analysis was done to check the impact of GST on different supply chains by comparing it to
the present tax structure. With the GST in place, all the taxes might become creditable, whereas in present
tax structure the CST gets cascaded in the pricing, and adds up in the cost of intermediaries.
Second, most critical point is in present tax structure the goods are not taxable under interstate transfer
within companys warehouse but with GST, it will also be taxable as per interstate goods and service tax
at applicable rates. Both the above, changes in the taxation are crucial factors for companies to decide on
their supply chain strategies. Many industries may plan to go centralized from their current decentralize
mode of operation, and reduce their warehouses to eliminate the Interstate GST.
We concluded that the introduction of GST in India will lead to a massive supply chain restructuring for
some of the industries. It will lead to centralization of warehouses and thus reducing the number of
warehouses significantly. It may have an impact on the total cost which has to be bear by customers in
case of transfer of goods from one state to other. It might also lead in direct transfer of goods from
manufacturer to Dealer/Customer, thus eliminating the IGST when moving the goods from one state to
other.
Page | 3
Supply Chain Management

In present world of stiff competition, Supply Chain Management is one of the critical factor in the
sustainability of any business. In the pre-liberalization era, the inclination of businesses was more towards
selling and producing, but with time, competition, and opening of economies supplying the goods at right
place, at right time and in right form is necessary for its success and acceptability.
Supply chain management is a set of approaches utilized to efficiently integrate suppliers,

manufacturers, warehouses, and stores, so that the merchandise is produced and distributed at the right
quantities to the right location, and at the right time, in order to minimize system wide costs while
satisfying service level requirements.
Supply chain strategy of any business depends on many factors that can be internal to the company or can
be governed by markets place or by the government. One of the factors that impact the supply chain is the
Tax or Fiscal costs.
In country like India, there is cutthroat competition in almost every industry and in every field.
Maximization of revenues and minimization of cost is the requirement of each company, and companies
change their business model and operating strategies to sustain in the industry. Companies change their
operating location where they get tax subsidies, labor support and government support. Therefore, tax in
such situations is important to decide the supply chain strategy.
Tax System
In India, government levies different types of taxes on different type of activities, like value added tax,
service tax, excise duty, luxury tax, entertainment tax etc from production of goods to consumption of
goods or services one has to go through different kind of tax regimes.
Indirect Tax in India

Presently, there are four types of taxes in India,
1. Custom Duty - Custom duty is imposed on the goods imported from other country
2. Excise Duty - Excise duty is imposed on goods manufactured in India
3. Sales Tax - Sales tax is imposed on goods transported or sold to consumers,
4. Service tax - Service tax is imposed on the services availed by the consumer
beyond the surcharges, octroi etc. the custom duty depends on the goods and its value, government
control the excise duty and service taxes.
Sales Taxes are of two types
1. Value Added Tax (VAT) Imposed on addition in value by the manufacturer at each stage,
decided by state government
2. Central Sales Tax (CST) imposed on transfer of goods from one state to another state, decided
by central government
Page | 4
Goods and Service Tax

Government of India is proposing to substitute the present tax system VAT and Excise with GST (Goods
and service tax). There would be common tax for all goods or services being consumed or availed
respectively. The Goods and service taxes would be in three parts:
1. CGST Central Goods and Service Tax to be imposed on goods or services consumed or availed
within state
2. SGST State Goods and Service Tax to be imposed on goods or services consumed or availed
within state
3. IGST Interstate Goods and Service Tax to be imposed when any goods or services consumed or
availed outside the state of origin
Page | 5
Critical Points of GST and present tax structure
Excise Duty, VAT, CST, Service Tax GST (CGST, SGST, IGST)
Excise duty and VAT are charged on value added to GST will be charged on value added but its
each stage of manufacturing scope of value addition is yet to be defined
CST is not creditable and it get cascaded every The cascading of IGST/CSGST/SGST cannot be
time it is charged defined as the credit policy is not available
Inter-state goods transfer within companies Interstate goods transfer will be liable for IGST
warehouse doesnot attract any tax (CST) even if it is within the company warehouse
Companys tries to minimize the tax burden by locating their warehouses and factories such that
maximum tax benefit can be availed. At present, companies have aligned their policies and operational
strategies as per existing tax structure. With the change in the whole tax structure in India, many
industries may have to change their supply chain strategy. Companies will try to align themselves with the
change to minimize the tax or fiscal cost.
The restructuring decision will be involved at every stage of supply chain
Page | 6
Simulation on the effect of GST on Supply Chain
A simulation was done by the Accenture Business Solutions using the real Supply Chain data of a major
CPG company
Two scenarios were run keeping the same demand and supply, changing the taxation structure from the
present (scenario 1) to the GST structure (scenario 2).
The new tax is expected to reduce the number of warehouses that manufacturers are required to maintain
in different states, resulting in a big increase in demand for integrated logistics solutions. Its very
probable that companies will move to newer and more centralized hub and spoke distribution models.
The GST will begin to make a difference to decisions about the physical supply chain, freeing executives
from having to locate manufacturing bases and distribution networks with tax benefits foremost in mind
and allowing them to think about operating flexibility and efficiency from the customers standpoint. As
such, the GST will put domestic business leaders on an even keel with importers that do not need to pay
consumption taxes.
Assumptions made to run the simulation
GST is assumed at 10% State GST and 10% Central GST

1 day Service Level implies 250 kms distance travel for secondary freight
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
Demand and supply was set constant in both scenarios and same service level was maintained
through simulation.
Page | 7
Inferences from the simulation
There is a reduction in the number of warehouses required to have the same service levels
Average inventory level is reduced on account of convergence towards the centralized
distribution system.
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
By reducing the no. of warehouses, lower taxes are levied in the 2 nd scenario resulting in either
the lower price of the product or the higher profit margin for the producer.
Possibilities of Tax Rate

Some of the factors which may further impact supply chain restructuring are as follows:
Different SGST in different states, some states with higher SGST than others
IGST may be different than CGST + SGST
IGST may not be claimable against CGST or SGST
SGST can be claimed only against SGST and so with CGST and IGST
These factors will play a role in deciding which state to set the warehouse in, what mode/route to follow
for a particular state, whether to have a dealer in separate state or have a warehouse as the differential tax
rates may affect these factors.
Page | 8
How GST can influence the Supply Chain Management of a company

Scenario Analysis
We did a scenario analysis to check the impact of GST on different supply chains by comparing it to the
present tax structure.
A factory in Himachal Pradesh was assumed and four routes having different supply chains were
considered for comparison.
1) Goods directly supplied from factory to end customers in HP in bulk

2) Goods supplied from the factory in HP to customers in Delhi via a dealer in Delhi
3) Goods supplied from the factory in HP to end customers in HP via dealer in HP
4) Goods supplied from the factory in HP to the end customers in UP via a warehouse in UP.
Without GST/ Present Tax structure
Assumptions:
Base Price 100.00
Excise duty 12.00%
Excise cess 3.00%
VAT 12.50%
CST 12.50%
Profit margin 10.00%
Route One
For a product manufactured and sold in the same state, the applicable taxes are Excise duty, Excise Cess
and VAT.
As per our assumptions, for a base price of Rs 100, an excise duty of Rs 12 is levied (12% of 100). An
additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid. The total of the
three amounts to 112.36 on which a VAT of 12.50 % is imposed.
Thus the total cost to the firm for supplying a product within state is the sum of the Base price, excise
duty and cess and VAT. The total cost comes out to be Rs 126.41 for route 1.
Route Two
For a product manufactured in one state and sold in other via a dealership in other state, the applicable
taxes are Excise duty, Excise Cess, CST and VAT.
three amounts to 112.36 on which a CST of 12.50 % is imposed to travel the goods from one state to
another. Thus the invoice paid by the dealer to the dealer is 126.41.
Page | 9
As per our assumptions, the profit margin kept by the dealer is 10%, thus 10% of 126.41 is kept as profit.
VAT of 12.50 % is then applied on the value achieved after addition of profit margin to the invoice paid
by the dealer.
Thus the total price in this case comes out to be Rs 156.43.
Route Three
For a product manufactured and sold in the same state and sold via a dealership, the applicable taxes are
Excise duty, Excise Cess and VAT.
three amounts to 112.36 on which a VAT of 12.50 % is imposed to travel the goods from one state to
another. Thus the invoice paid by the dealer to the dealer is 126.41.
by the dealer.
Route Four
For a product manufactured and sold in other state and sold via warehouse and dealership, the applicable
taxes are Excise duty, Excise Cess and VAT.
additional amount of 36 paise (3% of 12) are levied as excise cess on excise duty paid and the good is
then transferred to the warehouse in other state. The total of the three amounts to 112.36 on which a VAT
of 12.50 % is imposed to travel the goods from one state to another. Thus the invoice paid by the dealer to
the warehouse is 126.41.
by the dealer.
Page | 10
Taxes Paid
Route 1 Route -3
Tax paid to govt. Tax paid to govt.
By factory 26.41 by factory 26.41
By customer 0.00 by dealer 17.38
MODVAT Claimable by customer 0.00
By customer 26.41 MODVAT claimable
by dealer 14.05
by customer 17.38
Route -2 Route -4
Tax paid to govt. Tax paid to govt.
by factory 26.41 by factory 12.36
by dealer 17.38 by warehouse 14.05
by customer 0.00 by dealer 17.38
MODVAT claimable by customer 0.00
by dealer 0.00 MODVAT claimable
by customer 17.38 by dealer 14.05
by customer 17.38
Some points to be noted:
1) Route 2 and Route 3 are similar except that in case of state transfer dealer cannot claim MODVAT
benefit thereby absorbing the taxes in margins. Therefore to benefit the dealers company open
warehouses in different regions.
Page | 11
2) Route 4 is adopted against Route 2 if there are large customer in particular region to serve. It also
prevents taxes and delivers better service to customer. Warehouse Stock transfer gives the
opportunity to buyer to claim MODVAT tax credit.
With proposed GST

Assumptions
Base Price 100.00
Excise duty 0.00%
Excise Cess 0.00%
12.50
IGST %
CGST 6.25%
SGST 6.25%
10.00
Profit margin %
Route One
For a product manufactured and sold in the same state, the applicable taxes are CGST and SGST
As per our assumptions, for a base price of Rs 100, a CGST and SGST of 6.25 each is levied (6.25% of
100). The total amount comes out to be 112.50.
Route Two
For a product manufactured in one state and sold in other via a dealership in other state, the applicable
taxes are CGST, SGST and IGST.
As per our assumptions, for a base price of Rs 100, an IGST of 12.50 % is imposed to travel the goods
from one state to another. Thus the invoice paid by the dealer to the dealer is 112.50.
SGST and CGST of 6.25 % each is then applied on the value achieved after addition of profit margin to
the invoice paid by the dealer.
Route Three
For a product manufactured and sold in the same state and sold via a dealership, the applicable taxes are
CGST and SGST.
As per our assumptions, for a base price of Rs 100, a CGST and SGST of 6.25 each is levied (6.25% of
100). The total invoice paid by the dealer comes out to be 112.50.
CGST and SGST of 6.25 % is then applied on the value achieved after addition of profit margin to the
invoice paid by the dealer which is paid by the customer.
Page | 12
Route Four
For a product manufactured and sold in other state and sold via warehouse and dealership, the applicable
taxes are SGST, IGST and CGST.
As per our assumptions, for a base price of Rs 100, an IGST of 12.50 % on base price is paid to transfer
the goods from factory to warehouse in other state. The total amounts to 112.50 on which a CGST and
SGST of 6.25% is imposed and invoice paid by the dealer to the warehouse is 126.56.
CGST and SGST of 6.25 % are then applied on the value achieved after addition of profit margin to the
invoice paid by the dealer.
Taxes Paid
Route - 1 Route -3
Page | 13
Tax paid to central govt. Tax paid to central govt.

By factory 6.25 By factory 6.25
MODVAT Claimable By customer 0.00
By customer 6.25 Tax Claimable from center
Tax paid to state govt. by dealer 6.25
By factory 6.25 By customer 7.73
By customer 0.00 Tax paid to state govt.
MODVAT Claimable By factory 6.25
By customer 6.25 by dealer` 7.73
By customer 0.00
Tax Claimable from state
by dealer 6.25
By customer 7.73
Route -2 Route -4
Tax paid to central govt. Tax paid to central govt.
By factory 0.00 By factory 0.00
by dealer 7.73 by warehouse 7.03
Tax Claimable from center By customer 0.00
by dealer 0.00 Tax Claimable from center
By customer 7.73 by warehouse 0.00
Tax paid to state govt. by dealer 7.03
By factory 12.50 By customer 8.70
by dealer 7.73 Tax paid to state govt.
By customer 0.00 By factory 12.50
Tax Claimable from state by warehouse 7.03
by dealer 12.50 by dealer 8.70
By customer 7.73 By customer 0.00
Tax Claimable from state
by warehouse 12.50
by dealer 7.03
By customer 8.70
Some important notes:
1) In case of Route 2, dealer can claim tax benefit at their end and pay the differential of both CGST
and SGST. It is a gain for dealer for interstate deliveries. Route 2 and Route 3 will involve similar
tax idea as it involves only CGST and SGST at different state level.
2) In Route 4 the warehouse will be charged with CGST and SGST which was earlier not applicable
with VAT system. It will add tax burden to company to include the warehouse in different state d
further delivering the goods from warehouse to dealers and distributors.
Page | 14
Warehousing strategy-Should we change or not?
Decentralized warehouses:
1) Many warehouse in nearby region to serve
better
2) Cost of maintaining the warehouse
cumulatively would be high but can be
presumed to be compensated by better
service and tax saving
3) Demand forecasting at individual
warehouse level
4) High transportation for delivering the
product to smaller warehouses from
factory
5) Low transportation problems in sending the
goods from warehouses to
dealers/distributors
Centralized warehouse:
1) One big warehouse to cover more

geographical area
2) Cost of maintaining the warehouse is low
as the fixed cost of maintaining many
smaller warehouse would be higher
3) Demand forecasting will be central level
and fluctuation and inventory management
would be easier
4) High transportation for delivering the
product to dealers and distributors from
such big warehouses
5) Low transportation problems in sending the
goods from factory to single warehouse in
one region
Page | 15
VAT & CST GST

Scenario Summary
Route 1 Route 2 Route 3 Route 4 Route 1 Route 2 Route 3 Route 4
Base Price 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Total claimable Tax
Factory paid
- - - - - - - -
Total non-claimable
Tax paid
- - - - - - - -
Base Price - - - 112.36 - - - 112.50

Total claimable Tax
Warehouse paid
- - - 12.36 - - - 12.50
Total non-claimable
Tax paid
- - - - - - - -
Base Price - 126.41 126.41 126.41 - 112.50 112.50 126.56

Total claimable Tax
Dealer paid
- 12.36 26.41 14.05 - 12.50 12.50 14.06
Total non-claimable
Tax paid
- 14.05 - - - - - -
Base Price 126.41 139.05 139.05 139.05 112.50 123.75 123.75 139.22
Total claimable Tax
Customer paid
26.41 17.38 17.38 17.38 12.50 15.47 15.47 17.40
Total non-claimable
Tax paid
- - - - - - - -
Final Price 126.41 156.43 156.43 156.43 112.50 139.22 139.22 156.62
From the above table, we can infer that with the GST in place, all the taxes might become creditable,
whereas in present tax structure the CST gets cascaded in the pricing, and adds up in the cost of
intermediaries.
Second, most critical point is in present tax structure the goods are not taxable under interstate transfer
within companys warehouse but with GST, it will also be taxable as per interstate goods and service tax
at applicable rates.
Both the above, changes in the taxation are crucial factors for companies to decide on their supply chain
strategies. Many industries may plan to go centralized from their current decentralize mode of operation,
and reduce their warehouses to eliminate the Interstate GST.
With more centralization, the focus will move towards managing lesser but bigger warehouses. This may
increase in demand from central warehouse, therefore to transfer more material companies may try to
increase the truck sizes such that the number of trips can be reduced or increase the number of trips.
This will change the truck usage pattern, and it may influence the logistics to increase the load capacity of
trucks to minimize the cost of transportation per item.
Page | 16
Special Scenario Managing the Product Transfer within Internal Divisions
Scenario: A big manufacturing company (like Larsen and Toubro) has its manufacturing facilities at many
locations (for the specific case we take it as Mumbai). L&T also has its various regional warehouse and
offices in different parts of the country. Its business deals with selling the goods and services to outside
customers and supply to its internal divisions that can further sell/consume it to service the other company
(say Indian Oil). For the case, let the L&T has its central warehouse in Faridabad, internal division is
L&T, Delhi and end customer is BHEL, Haridwar. Product flow would be from L&T Mumbai to BHEL
Haridwar. L&T Delhi is the vendor for BHEL Haridwar.
In the present tax structure, the product flow would be

1. L&T Mumbai can give the material to central warehouse in
Faridabad (no interstate goods transfer tax would be
applicable as it is a stock transfer),
2. the central warehouse can supply the good to L&T Delhi
(with applicable taxes like Excise, CST/VAT),
3. L&T Delhi supplies to BHEL Faridabad (with taxes as CST
and Excise Duty as applicable)
4. Invoice of material will also move as per the delivery point
of material
5. Since, central warehouse serves other customers also,
material from Mumbai comes to Faridabad for further
supplies.
In the proposed tax structure of GST, every movement of goods

invites the taxes either IGST or CGST/SGST. Therefore, in the above example product transferred from
Mumbai to its Delhi division would be double taxed (first from Mumbai to Faridabad and then from
Faridabad to Delhi).
Company can chose an alternate to minimize its taxes by
following method:
1. L&T Mumbai can invoice the material directly on name of
L&T Delhi instead of Central Warehouse as was in
previous case,
2. Although, invoice is for L&T Delhi, the Goods can be
routed through its central warehouse only, as the central
warehouse is already available
3. This can help in optimizing the transportation from
Mumbai to Central Warehouse, as the deliveries to central
warehouse now consist of both the L&T Delhi division
material and its own requirements
4. The material is going through central warehouse but the
invoice routing is changed (skips the central warehouse),
therefore the double taxation from Mumbai to central
Page | 17
warehouse and from central warehouse to L&T Delhi can be eliminated with single invoice of
Mumbai to L&T Delhi division directly.
Expected industry response to GST
The impact of GST would be dependent up on nature industry. Businesses that demands closeness with
the end consumer and cannot afford risk of high lead-time or lower service response time may not change
their warehousing strategy but businesses that are self-driven / deals in necessary items may change their
supply chain strategy to minimize the tax impact.
Few industry specific influence of GST on supply chain strategy is discussed below
Industry: Fast Moving Consumer Goods
SCM requirement - low lead-time, high response time, and delay in service can severely affect the
business, highly consumer preference dependent, easy substitutes available
Likely Attitude of GST No major change is expected in warehousing strategy of FMCG companies, it is
the necessity of the companies to maintain their highly sophisticated networking of goods and products
Reason FMCG companies are highly dependent on consumer preference, it may be high risk for
companies to opt for major changes in their warehousing strategy and move from decentralization
towards centralization, centralization may invite higher lead-time, distance from consumers and it
increases the burden on transportation and logistics to ensure timely delivery of goods.
Industry: Heavy Engineering and Equipments
SCM requirement lead-time generally not much dependent, involves in big contract works therefore
things are according to schedule, pull strategy products, customers are usually big companies
Likely Attitude on GST Companies may eliminate the regional warehouses and directly deliver the
products to customers. This will reduces their warehouse operation cost and the effect of service delay can
be accommodated for such big projects
Reason Heavy engineering equipment companies have generally pull demand products, with GST in
place the additional burden of taxes would either be borne by companies or companies may try to pass on
the burden to end consumer. In present world of high competition, companies may try to reduce their cost
and eliminate their less utilized regional warehouses
Industry: Necessary goods manufacturer
SCM requirement lead-time may or may not be dependent but better customer service is desirable of
such companies, pull strategy products, customers are generally large in number,
Page | 18
Likely Attitude on GST Companies may not eliminate the regional warehouses and serves the end
consumer. The companies will not worry about tax changes and such companies may transfer the
additional burden to end consumer
Reason Necessity goods gives the companies advantage to dictate the terms. With GST companies may
try to pass the burden to consumer as it is expected that for necessary items consumer would be willing to
pay higher price. Therefore, companies may not change their supply chain strategy and focus more on
better delivery and service response.
Industry: Highly price elastic products
SCM requirement low lead-time, small consumers, easy substitutes, highly price sensitive, change in
demand pattern cannot be predicted
Likely Attitude on GST Companies may not change their supply chain strategy in order to maintain
high efficient delivery and better serve, in addition in order to maintain the prices, the companies
mayhave to take the burden of additional taxes on to themselves, OR, if prices needs to be changes it may
change at industry level. As the additional taxes if applied will be for the whole industry therefore the
change in supply chain strategy may happen at industry level and not at company level.
Reason Price elastic products are Push strategy products, they need to be filled in market and moving
from decentralization to centralization may not be effective for such highly push driven products. The
companies cannot afford to lose the market because of high prices or non-availability.
Industry: E-commerce
SCM requirement low lead-time, small consumers, easy substitutes, change in demand pattern cannot
be predicted, low margin products
Likely Attitude on GST there may be two possibility for such companies, either they may not be able to
change their supply chain strategy in order to maintain a good and efficient delivery system or companies
may change their business model itself i.e. companies may change their business model and work as
interface between consumer and suppliers.
Reason E-commerce is usually low margin driven industry and operating with large number of
warehouses with additional tax burden may not be suitable in long run, therefore the companies may find
it difficult to operate in small regional warehouse operation mode. e
Conclusion
We can conclude that the introduction of GST in India will lead to a massive supply chain restructuring
for some of the industries. It will lead to centralization of warehouses and thus reducing the number of
warehouses significantly. It may have an impact on the total cost, which has to be bear by customers in
case of transfer of goods from one state to other.
It might also lead in direct transfer of goods from manufacturer to Dealer/Customer, thus eliminating the
IGST when moving the goods from one state to other.
Page | 19
References
1. Accenture Report 2011, Goods and Service Tax responding to an unprecedented opportunity to
transform supply chain performance in India, Anurag Sckhri, Ganesan Ramachandran
2. Designing and Managing the Supply Chain, David Simchi-Levi, Philip Kaminsky, Edith
Simchi-Levi, Ravi Shankar
3. Business Standard article, Companies gear up to face GST Impact, Delhi, April 15 th
4. Transporter Magazine, March2012 , GST Impact on Logistics industry in India
Page | 20

Group Project Impact of GST On Supply Chain Management

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Group Project Impact of GST On Supply Chain Management

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Impact of GST on Supply

Supply Chain Management

Supply chain management is a set of approaches utilized to efficiently integrate suppliers,

Indirect Tax in India

Sales Taxes are of two types

Goods and Service Tax

Critical Points of GST and present tax structure

The restructuring decision will be involved at every stage of supply chain

Simulation on the effect of GST on Supply Chain

Assumptions made to run the simulation

GST is assumed at 10% State GST and 10% Central GST

Inferences from the simulation

Possibilities of Tax Rate

IGST may be different than CGST + SGST

IGST may not be claimable against CGST or SGST

How GST can influence the Supply Chain Management of a company

1) Goods directly supplied from factory to end customers in HP in bulk

Without GST/ Present Tax structure

Thus the total price in this case comes out to be Rs 156.43.

Thus the total price in this case comes out to be Rs 156.43.

Thus the total price in this case comes out to be Rs 156.43.

With proposed GST

Thus the total price in this case comes out to be Rs 139.22.

Thus the total price in this case comes out to be Rs 139.22.

Thus the total price in this case comes out to be Rs 156.62.

Tax paid to central govt. Tax paid to central govt.

Some important notes:

Warehousing strategy-Should we change or not?

1) One big warehouse to cover more

VAT & CST GST

Base Price - - - 112.36 - - - 112.50

Base Price - 126.41 126.41 126.41 - 112.50 112.50 126.56

Special Scenario Managing the Product Transfer within Internal Divisions

In the present tax structure, the product flow would be

In the proposed tax structure of GST, every movement of goods

Expected industry response to GST

Industry: Fast Moving Consumer Goods

Industry: Heavy Engineering and Equipments

Industry: Necessary goods manufacturer

Industry: Highly price elastic products

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