Business Processing Restructuring

Getting GST Ready

With the introduction of GST, the present indirect tax rate structure would be overhauled. The same would also impact the import duty rate structure.Further, the credit mechanism is also proposed to be revamped. At this stage it is proposed that IGST should be completely fungible vis-à-vis IGST, CGST and SGST, whereas there would be no cross utilization of credit between CGST and SGST. However, the fungible credit mechanism can be marred by the recently proposed additional levy of 1% on inter-state supply of goods. This would require the company to rework on their existing costing models so that introduction of GST may not take away the margins at which they are currently operating.

GST is proposed to be levied on supply vis-à-vis sale / manufacture. Given this, Companies would have to necessarily evaluate their supply pattern (and frequency thereof) such as supply to warehouse, job work premises, return of goods etc. as the same may come under the purview of GST. Supply chains will therefore see a radical change. Once the GST contours are finalized, the existing supply chains need to be re-looked and re-structured.

Sourcing, distribution and warehousing decisions which are currently planned based on state level tax rationalization mechanisms instead of operational efficiencies will be reorganized to leverage efficiencies of scale, location and other factors relevant to the business. Location of the warehouse would be more driven by the market forces of demand and supply.

The above is only an illustrative area wherein business re-modelling can be effected. Therefore, all the existing models would be required to be re-looked into, to fashion the most efficient business model. Tax professionals can assist in evaluation and streamlining logistics supply chain, largely from a tax perspective

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