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GST in India and Its Significance in Warehousing Industry

March 4, 2017 - Posted in Mobility Posted by:

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GST is all set to swallow other indirect taxes in India and wipe off the unorganized warehouses. Here’s how the Goods and Service Tax gearing up for changes in taxation across the country.

Goods and Service Tax (GST) is an indirect tax collected by the government during the purchase or sale of goods but for you it can be a worthy taxation tool in short. How does one say whether it will help or not? It will replace the tax collected by the government as it is considered as the biggest reform in India’s indirect tax structure. Let’s figure out few facts about GST:

  • GST is levied on manufacture, sale, consumption of goods and services in India.
  • With the ratification of more than 50% of state legislatures, the Constitution Amendment Bill for Goods and Service Tax has been approved by the President of India in the Parliament.
  • The endeavor is to replace all the indirect taxes imposed on goods and services by the Centre and States and implement GST by April, 2017.

The implementation of GST in India is considered as a revolutionary step because once it comes into effect the anatomy of today’s taxation structure of our country will be fortified dramatically.

  • One organization can establish its own warehouse to optimize cost and boost customer service.
  • The effective and fruitful features of GST would be an antidote in taxation in all over India.
  • Only the Union Government can control the power to make or change laws in terms of supplies in the course of inter- state or commerce, as it is under Union Government’s own jurisdiction. On other side, the States will have the right to levy GST on intra – state transactions.
  • The import of goods will be subject to basic customs duty and GST that will levy on inter-state supply of goods and services.
  • GST will be imposed on any kind of goods and services in terms of sales and supply other than on alcohol and human consumption.
  • Several taxes will subsume in GST as per the instruction by the government like – Central taxes such as Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty as well as state-level taxes such as VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroy (A privilege granted by the authority, as the exclusive right of trade granted to a guild or society).
  • Though the final notice has not declared yet, the petroleum and petroleum products like crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas shall be included to GST.
  • The Entertainment tax that levied by states on films, theatres etc. will be smeared in GST but the taxes on entertainment at panchayat, municipality or district level will continue as same as before.
  • By the implementation of GST, government would see a new sunrise in revenue collection that would be substantial and incremental also.
  • Last but not the least; GST Council will be the supervisor of the entire administration of GST. Members of GST Council consist of Central and State ministers in charge of the finance portfolio.

Let’s elucidate how GST will change warehousing landscape in India

Even few years ago, Warehouses in India was equivalent to a typical picture that consists of four walls, fragile sheds, no hygiene and brimming with lot of mismanagements. The lack of modern warehousing facilities, unorganized storages with countless waste materials and use of labor intensive manual processes, warehouse became a synonym to typical store rooms. According to the statistics and records:

  1. 120 million sq.ft. Exists in the sector and this gap will increase in near future. This is mainly because demand for warehousing is expected to grow at CAGR of 18% in the next 5 years.
  2. Excessive adhoc taxes that have been imposed on state and central level have further contributed to high costs of warehousing. These are the main reasons that prohibit warehousing industry in all sectors. This is set for a change with implementation of GST
  3. Use of Warehouse Management System to reach efficiencies of scale will become mandatory to manage large warehouses, warehouses handling multiple SKUs and warehouses spread across geographies

Only consolidation and proper reinforcement of tax structure can compose a better harmony  at the current stage.

Perhaps, you are thinking of the agony of augmenting your business set-up with current scenario. How to sustain and regulate its locomotion properly? How one can strike the right balance to jumpstart the business growth?

Just wipe out the doubt because, latest state of the art equipment, use of proper systems and redistribution methods are always responsible for the rising fortunes of product manufacturing.

India shall adopt a dual GST model and that will subsume taxes at the central and state level. There will be a CGST and SGST (intra-state supply), and IGST (inter-state supply). The transformation from origin based taxation to a destination based consumption tax is the major shift from the current tax structure indeed.

Today, most of the industries operate on a state warehouse model undertaking stock transfers to unerring tax costs (since inter – state sales are subject to non – creditable CST of 2%). However, under the regime of GST, inter-state sales as well as branch transfers shall be subject to a creditable GST. Henceforth, large count of businesses may agree moving to a single warehouse model to reduce the hazards of multi state operations and costs. This endeavor can potentially increase the growth of business in centrally located areas to cherish the single warehouse model.

However, GST is a value added tax that will replace all other indirect taxes in India. The endeavor is to make taxes destination based rather than origin based. ERPs and Warehouse Management System software can help companies manage GST calculation as well. GST will cut down the share of the unorganized sector in warehousing by which, price charged by the organized players will reduce and unorganized warehouses would not be able to cherish like earlier. Uniformity across the board and eliminating the cascading effect of taxes will create a drastic change by making all regional tax liabilities equal.  Likewise, the cost difference between states will gradually remove.

Now, you can ask about the final consequences of this GST implementation! What will be the outcome?

  • There will be a homogeneous growth and equitable development of warehousing all over the country. Along with the commencement of GST, any logistic company can re-establish their warehouse.
  • Warehouses of the future will be huge and will be capable of handling large volumes. Modification and redevelopment is indispensable today specifically in order to do profitable business and achieve cost efficiency. One can change the entire location of the warehouse and select a spacious area or hub by which loading and transportation will not be an obstruction anymore.

Implementation of a state of art Warehouse Management System, which caters to configurable supply chain processes required by companies to provide better customer service and control operational costs, will become pertinent.  However, to avoid several taxes in different states, there should be one single warehouse in central zone which can preserve the stocks easily with more capacity. To know more on how large warehouses can be efficiently handled, click PALMS Warehouse Management System (link to http://onpalms.com/products.html) or ask for a free demonstration on info@onpalms.com

Unreasonable taxes would not be able to create obstructions in business after successful GST implementation

Now, Let’s speak about GST Audit for the transfer of goods

Warehouses play the important role which caters to customer orders in different geographical area. Currently, there is a levy of excise duty on removal of goods on both intra-state and inter-state stock transfer of manufactured goods. One would not have to pay output VAT or CST as ‘Supply’ is the paradigm shift of taxable event in the GST law. Accordingly, all transactions that qualifying as a supply for a consideration would be subjected to either levy of CGST/SGST or IGST.

For more information on how PALMS Audit Trail and Stock Transfer functions can help track inventory movement and classification under CGST/SGST or IGST, send a demonstration request to info@onpalms.com

How is GST structured for movement of goods?

Under the new GST regime, the ‘appropriate state’ for payment of GST on supply of goods and services shall be governed by ‘Place of Supply Rules’. The impact for these rules is likely to be most acute for service providers, wherein the place of supply is based on location of service recipients for B2C supplies (such as mobile operators, banking, travel etc.). Companies currently discharging tax dues on a centralized basis would, under GST, need to have state – wise establishment, registration and undertake compliance.

Under GST, state wise credits would need to be maintained with no cross utilization between CGST and SGST, and amongst CGST/ SGST of one state against CGST/ SGST liability of another state. Considering the proposed tax rates, GST costs are estimated to be significant for businesses and credit optimize would be important given the legal dynamics. Thus, in some cases, there may be a preference to decentralize procurements (services specifically) to prevent credit accumulation, whereas certain dealers may look at centralization of procurements. Businesses shall need to accordingly restructure themselves to prevent credit blockages.

The proper balance and harmony between Center and State tax administrations was the most awaited framework that would bring significant changes in doing business in India.

But, after the actualization, how the companies will tackle GST?

Before the commencement of GST, companies are mainly upgrading their enterprise resource planning (ERP), are fast tracking implementation and integration of Warehouse Management software with their ERP. It’s very significant to accommodate the complicated parts of calculating GST. Actually, ERP helps companies manage and monitor each and everything in the organization, including supply chain, finance and even human resource functions, whereas Warehouse Management System helps them track Locations, Quantities and Stock Movement. Several companies may have to transform and reinforce their current system. The interesting fact is, each and every transaction is recorded separately, to an upgraded system and there is a correlation between every entry, according to every experts and industry executives. Every state is treated differently under the current system while GST has taken the endeavor to evolve India as a common market place.  Thereby, many companies acknowledge the need for the new systems and from other side, few companies are waiting for the final tax rate.

Thus, GST will omit the local state taxes and there will be only one Goods and Service Tax across the country as well as logistics and warehousing industry will rise like never before.

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13 Comments

Rahul 2 years ago

I was confused earlier but now after reading your blog I understood the major points. Heartily thanks for sharing the blog it helped me.

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Sunil 2 years ago

its more important to have a foolproof implementation system of taxation and its use for development of public infrastructure rather than show off.

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Kalpesh 2 years ago

Thanks for sharing the blog it was informative. It was helpful

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harsha 2 years ago

Feeling excited, Eagerly waiting for this to happen as it will help the poor consumers in many ways. Thanks for the informative it was helpful.

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Vicky 2 years ago

Hello Admin!
Such a great and informative post indeed on GST, I really appreciate it!
Keep updating stuffs like this.

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raj 2 years ago

It is going to be beneficial for the consumers once it is started. It will probably take time to get use to it. Thanks alot for sharing the informative part i was unaware of this.

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guruprasad 2 years ago

Insightful article on effects of GST. Analysis about before and after GST in warehousing and logistics is informative. GST will be a pat on the back for the growth of logistics and supply chain. Logistics, in turn could help other businesses to make minimum of margins. another interesting article on GST and its effects on various industries. http://bit.ly/2tn8wPU

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Elanthendral 2 years ago

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Sumita 2 years ago

It’s in reality, a great and useful piece of information. I?m glad that you simply shared this useful info with us. Please keep us informed like this. Thank you for sharing.

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Sumita 2 years ago

Your blog is very informative and relevant to Warehousing Services.really i appreciate it.To know more about Warehousing Services please visit us Synchronized Supply Systems Ltd is also Logistics Company in India provides Warehousing Services in India.Thanks For Posting such Informative Blog !

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pramod 2 years ago

Feeling excited, Eagerly waiting for this to happen as it will help the poor consumers in many ways. Thanks for the informative it was helpful.

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jayavel 2 years ago

its really very good information 🙂 you have done great job dude

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Sruthi 9 months ago

Nice blog, very interesting to read

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