Supply Chain is back bone of any business and economy of a nation. If the supply chain is strong, economy automatically becomes strong. In this post, we will see how GST going to help and strengthen different areas of the supply chain of Indian economy.
So, let’s begin…
Warehouses – CST has been a major rationale for setting up of warehouses in past
An inter-State sale of goods is liable to Central Sales Tax @ 2% (subject to declaration forms). CST paid on the purchase of goods is not available as a set-off. Thus, it results in cost in the supply chain transaction.
Given this, to avoid the applicable CST of 2%, most of the Companies have set up branches/warehouses in different States. It has been observed that some of the Companies have more than 30 branches/warehouses in the Country only to save CST cost*.
Note: *However, many States (such as Maharashtra, Gujarat) have introduced provisions for the reduction in input tax credit of VAT for stock transfers. This also results in loss of tax credits to businesses.
However, in GST regime, an Inter-State transaction in ‘goods’ will attract Integrated Goods and Service Tax (IGST). The credit of IGST paid on purchase would be available against output GST liability (a big relief).
Given the above, the current rationale (i.e. to save CST) for setting up branches/warehouses in various States will become redundant. In view of this, many Companies which have set up branches/warehouses in different States only to save CST may reconsider their decision and may consolidate their branches/warehouses.
If not then they have to apply for separate GST registration for each state.
Area based incentives**
Most of the area based incentives are approaching their legitimate expiry time. In GST regime, the tax exemptions, remissions etc. related to industrial incentives, if at all needed, would be converted into cash refund schemes.
In GST regime (post expiry of area based incentives schemes), the Companies may reconsider shifting their factories to other locations.
Note: **Area Based Incentives are offered by the Governments to promote investment in a particular State/location
such as Baddi (Himachal Pradesh), Kutch (Gujarat) etc
Availment of credit
Currently, there are restrictions on availing of credit for a service provider. A logistic service provider cannot avail credit of VAT paid on inputs procured. This becomes a cost in the supply chain.
Further, a trader or retailers or malls cannot avail credit of Service tax and excise duty paid on their purchases.
Currently, a retail mall owner will not be able to avail credit of Service tax charged by a logistic service provider and thus it becomes a cost in the transaction.
In GST the aforesaid will change to a certain extent.
In GST regime, in view of removal CST on inter-State sales, the warehousing decisions will be based on business needs than tax considerations.
Also, the expiry of Area Based Exemptions may lead to change in current manufacturing locations to another locations based on business needs than tax considerations.
Cumulatively, the aforesaid will open a window of opportunity to logistic and warehousing companies as the there would be centralization of warehouses and manufacturing locations.
That’s it for this post, my friend. I hope you again gained some insights from this post.
In the upcoming posts you will know about:
• GST – International Scenario (as we have global readers)
• GST Model & Registration
• The special one “GST – E-Commerce and Digital Business
I will try to present it into pieces so that a normal person can absorb the information easily. I know this taxation part is so boring but very essential part of a business.
Please comment below about your doubts and questions about GST. Also, let me know what do you want to learn or expect from me?
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Thanks for your valuable time, talk to you more about GST in next post.
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Courtesy: A special thanks to our beloved CA Pritam Mahure for his guidance and efforts.
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