GST

GST Impact on Supply Chain

The Goods and Services Tax is implemented from July 1st, 2017 and affected the prices of the goods and services in the market. With all of the new laws that GST is set for each industry, it is important to read and know the effects it will have on your business and the goods and services that you buy and use. Here, we will analyze the same and figure out the exact GST Impact on Supply Chain. Some goods and services are less expensive than before or vice versa.

The new system will streamline the central and state tax, and refine the system into paying only one kind of tax. Some of the industries will benefit while others would have to pay more taxes under this system. It would also boost the flow of white money in the economy as it would legalize a lot of activities and ensure the integrity of the businesses that operate in the country.

There will be huge GST Impact on Supply Chain, as the supply system is exposed to many taxes throughout the chain. Here, we will analyze the same and figure out the exact GST Impact on Supply Chain. The structure of the supply chain is prone to various taxes depending on their geographical location and the area they are based out of at each level. With GST rolling out soon, the different levels of the supply chain will be prone to different slabs of taxes out of the four taxes that have been created under GST, whereas a few of the components of the supply chain would gain benefits and be able to move about more freely. Once the GST is rolled out, the supply chain would largely focus on logistics cost and customer service. Following are the benefits that will be applicable to the supply chain under the new GST laws^[1]:

GST Impact on Supply Chain

• Inter-state Sourcing of Raw Materials

Since the business or the company will have to be registered in only one state and the business can be carried out in different states under the new GST laws, it will give the business more advantage in procuring raw materials from other states at cheaper costs and increase their profit margins. The company can get the best raw materials from the state that manufactures the particular material and make better quality products.

• Price Negotiation

Since the business will expand due to the one registration policy under the new GST laws, the retailers would be able to negotiate their prices with the wholesalers as they would have procured the item at a cheaper cost. This will benefit the final consumer as the prices of some of the items could be reduced. there are Anti Profiteering provisions set in place to make sure that this reduced cost-benefit is transferred to the final consumer. If anybody is misusing these laws for their own good, then a complaint can be filed against them and action will be taken against them by Anti-profiteering authorities.

• Improvement in Quality

Since the raw materials will be procured from states that have specialized in them, the quality of the items produced would improve drastically as the manufacturers would not want to compromise on the quality of the product as they are already maintaining a low cost of production. This will benefit the final consumer as the item would become more long-lasting than before and have a better shelf life.

• Better Forecasting

Since there can be a tax on the goods that are stored in the warehouse under the new GST laws, the wholesalers and the retailers would have to have better forecasting in ordering their products in order to avoid the extra taxes. This will lead to better inventory management and cut down on the storage cost for the businessman.

• Improved Inventory Management

Since the goods stored at the warehouse would be taxed under the new GST laws, the traders will have to plan for improved inventory management, and order only according to the need of the business and not store products unnecessarily. This will reduce their transportation and storage costs, and will benefit them in the long run. It could also help in reducing the price of the product for the final consumer.

• Customer Service and Transport Cost

The new GST laws will have the supply chain to focus more on customer services and transport costs. The cost of transport will decrease as the hindrances between state movements will not be as much as in the current tax system. The supply chain would flow more smoothly, and the retailers will be able to deliver the product on time and in return take care of their customers by making timely deliveries.

• Capacity Expansion

The new GST laws will allow for easy expansion of the business into different states and the manufacturers will be able to expand their units into other states and increase their business. The supply chain will become more organized and aid in the expansion of the business by allowing the free flow of raw materials to the finished product.

• Flexibility in Manufacturing

Since the manufacturing can be done in other states under the new GST laws and the movement of the finished product has become easier in the supply chain, the manufacturers can allow for flexibility and better customer service as they can move their products around with more ease than before using the smoother and more organized supply chain.

Since there will be only one centralized GST tax, the warehouse location can also be centralized or can be expanded into different localities, depending on the nature of the business, since the local tax has been eliminated. This is a huge win in the supply chain for the manufacturers as they will be able to move around their products more freely and reduce transportation and storage costs.

This will increase their profit margins and bring down the cost of the product, benefiting the final consumer. This will also improve their inventory management and demand planning, which will reduce the wastage of products and hence save costs again. If the company is choosing to have only one centralized warehouse, then the transport cost could increase and the time taken for deliveries would increase as well. Therefore, the business would have to plan much in advance about their strategies and implementation in order to retain their customers in the increasingly competitive market under new GST laws.

Conclusion

We hope you gained some clarity on how GST Impact on Supply Chain. For any related queries or any other services like GST Registration, contact Enterslice.

Read our article:GST Impact: How Enforcing Input Tax Credit Can Hurt the SME Economy