Goods and Services Tax and its Supply Chain Implications

In any production system input passes through gradual transformation and final product comes out of productive system. In case of Sales Tax, end users are liable to pay the tax to the government but the introduction of Goods and Services Tax (GST) ensures payment of tax by each participating agent in the supply chain for every exchange taking place. “Supply” and “Supply Chain” are thus appearing to be the significant terms associated with the implementation process of GST.

In addition to the expected benefits of reduced price of products for consumers, simplification of tax system, unification of markets resulting in national market for goods and services, it is also expected to result in integration of informal sector with the formal sector which is essential for the development of an economy. The above is expected to have an important impact on the economy because such integration makes govt. taxation policies successful in affecting each and every income generating activity/sector.

The supply chain implications of GST in Indian context may be summarized as follows: Abolition of warehouses and directly sending the products to the Distributor-but that will raise the question of viability in terms of distribution time, freight cost etc. although that may reduce material handling cost, labour/human resource cost, rental cost of warehouses Transformation of traditional warehouses/godowns into big modernized warehouse especially in the metropolitan cities-Cities with locational advantages will experience increase in price of land/space. Differential impact of GST on distribution network of different companies-The new rates of taxation on specific type of goods or services in comparison to multiple taxes which were paid in the pre-GST era would be the reason for differential impact on different companies/products/services.

The introduction of GST is also associated with apprehensions regarding stability of jobs for the existing workforce in private and public sectors of the economy, drastic changes regarding the existing facility location of the companies, further existence of multiple-taxation/cascading and many others. This paper is an attempt to discuss the expected changes, opportunities and uncertainties associated with introduction of GST in Indian context.