The document discusses how the implementation of the Goods and Services Tax (GST) in India could help ease corporate supply chain issues. First, GST would help alleviate tax burdens on companies by overhauling the current complex indirect tax system. Second, it could reduce logistics costs for companies depending on their ability to consolidate and re-engineer supply chains, such as eliminating multiple "tax warehouses". The consumer durables sector in particular may benefit the most from consolidation. Overall, GST could lower transportation, warehousing, inventory, and total tax costs for companies across various sectors in India.

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How far – reaching would the GST impact be to ease
Corporate India’s supply chain woes?
By
Zubin Poonawalla
Withmuch ado overimplementationof the longawaitedGSTfromApril,2016, the mootquestionis:
How far-reaching wouldthe GST impact be to ease corporate India’s supplychain woes?
First& foremost,The GST’sadventwill helpalleviatethe tax woesof IndiaIncby overhaulingthe
currentcomplex,cascadingindirecttax regime.Secondly,itwillreduce logisticscosts,dependingon
the extent&abilityof companiestoconsolidate &re-engineertheirsupplychain.Mostimportant
wouldbe the eliminationof “tax warehouses”(setuptoavoidCST) intofewer,largerones.Aspera
CRISILResearchstudy,consumerdurablesmanufacturershave the maximumscope forsuch
consolidation,giventhe predominance of tax warehousesinthissector.Additionalsavingscould
alsoaccrue if check postsacross Indiaare dismantled,thereby,resultinginefficienttransportation&
lowerfreight&inventorycosts.
Players with warehouses at multiple locations to reap dual advantages
Ironically,several Indiancompanieshave establishedwarehousesatmultiple locationsmore asan
attemptto save theirtax outgo,than to improve theirlogisticsframework.Nonetheless,such a
move has ratherincreasedtheirlogisticscosts –to more thantwice of what theirglobal peersincur.
As permy estimates,logisticscostsof companiesinsectorssuchas FMCG, ConsumerDurables,
Pharma & Autoform5 – 9 %of theirrevenues.Moreover,uncertaintyoverthe time takenfor
transportinggoodsfurtherincreasestheirinventoryrequirements.Once the GSTis implemented,
besidesthe broadtax savingsthatwill accrue fromany reductioninthe final GSTrate, there will also
be certainspecificbenefits,assumingthatthe CST of 2% isphasedout.While companiespayingthis
levywill save onthisdirecttax outgo,those avoidingit(bysettingupmultiplewarehouses) will
witnessadrop inlogisticscosts.
Implementingthe GSTwouldalsopave the wayforlarger,regional warehouses&usage of higher
tonnage trucksfor hub-2-hubtransportation.Thiswouldpropel ashifttowardsadvancedMHCVs.
An increase inlastmile distanceswouldgiverise tothe needforhigherLTL shipments.These factors
are likelytotranslate intoadecline inthe overalltransportationcosts.
Consumer durable sector poised to benefit the most
Amongthe varioussectors,the domesticconsumerdurable sectorcouldbenefitthe mostfromthe
consolidation.Apartfromsavingsaccruingfromthe closure of several state-levelwarehouses&use
of highertonnage vehicles,theycouldalsosee adropininventorycosts.Incomparison,the FMCG
sectorhas a more complex distributionnetwork,where proximitytoconsumersmattersmost.

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Consolidationof warehousescouldincreasetransportationcostshere,assecondaryleaddistances
widenfurther.Incase of pharma,larger distributors/superstockistscouldsee long-term
opportunities,arisingfromneedfortimeliness.Inthe autospace,MHCV playershavingstate-wise
stock yardswouldconsolidate,whichcouldlowerwarehousingcosts.
Add-on benefits
Besidesthe aforesaidbenefits,GSThasmore to unveil forlargerIndiadiaspora.Recentanalysis
revealsthata goodsvehicle spendsone-fourthof itsjourneyattoll booths,entrypointstocities,etc.
If some of these checkpostsare eliminated(those relatingtotax aspects),companiesacrosssectors
will benefitfromadditional costsavings,ridingonlowerfreightcosts&bufferstocks.
Overall tax gains
From a pure taxationangle,all playersincorporate Indiaare likelytosee theiroverall tax burden
shrink,withcascadingeffectsof severalVATbasedtaxeseliminatedunderthe GSTregime. These
include areaswhere duplicationof taxespersists,tax oninterstate salesisnotbeingcompensated
for & incase of non-VATtaxes(where noset-off isavailable).Furthermore,if the currentestimated
revenue neutral rate of approx.27%is cut, itcouldyieldadditionalgainsforplayers.
Way forward
While the nationatlarge & companiesinparticularawait GST,what remainstobe seenisthe net
impactof thisregime.Muchalsodependsuponthe goodsthatare included&exemptedfromthis
levy.Indicationsare thatthe Centre has agreedtocompensate statesforrevenue lossesforthe first
five yearspostGST implementation,&keeppetroleumproductsoutside the ambitatleastinthe
initial phase.