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Impact of GST On Warehousing and Supply Chain
Impact of GST On Warehousing and Supply Chain
Impact of GST On Warehousing and Supply Chain
Agenda
TRADITIONAL/NEW TAXATION AUTHORITY IN INDIA GST REGIME THE FLAWLESS GST ELEMENTS
A TYPICAL TAX CASE IN MANUFACTURING SCENARIO TRADITIONAL METHOD A TYPICAL TAX CASE IN MANUFACTURING SCENARIO UNDER GST PRICE IMPACT OF GST
IMPACT ON WARE HOUSING GST IMPACT ON TAX EFFICIENT SUPPLY CHAIN BUDGET AMENDMENTS IN SERVICE TAX
T e Levy of Taxes x t
State Levies Text VAT, Entry Tax, Entertainment Tax, Stamp Duty
Text
GST REGIME
GST
Forecasting
Voluntary Compliance
OBJECTIVE OF GST
No export of taxes across taxing jurisdictions Integration of markets into a single common market
Elegant Method
Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially sticks on final consumption within the taxing jurisdiction.
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Dual levy imposed concurrently by the central and the state (CGST, SGST), but independently to promote cooperative federalism
consumption-type GST - raw materials and capital goods in allowing input tax credit
The computation of the CGST and SGST liability shall be based on the invoice credit method i.e., allow credit for tax paid on all intermediate goods or services on the basis of invoices issued by the supplier.
Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods
GST is on Consumption rather than Production Imports liable to both CGST and SGST. Exports should be relieved of the burden of goods and service tax by zero rating.
Cross utilization of ITC (Input Tax Credit) between the CGST and the SGST should not be allowed
Common lists for Centre and States with little flexibility for States to deviate
Exports / Inter-state transactions/ consignment sales and branch transfers Zero rated
NO input stage exemption for the developers of, or units in, the Special Economic Zones
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The unit of taxation for the purposes of GST should be persons as defined under the Income Tax Act
Required to register and obtain a GST registration (PAN based 12 digit number)
Common tax base and subsuming of various Central and State level levies into Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). Payment of tax and the transaction reporting statement in Form No. GST-I - common for both CGST and SGST electronically on a monthly basis
Both the Centre and the States will cease to have any independent power to make changes in the design and structure once agreed upon
States should also be liable to a penalty in case they deviate from the agreed design and structure of the GST.
levy should be based on audited accounts and not on the basis of any form of physical controls
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Make
Supply Chain Visibility
Ship
Sell
Service
Parts Distribution
MRO
Design Engineering
Manufacture
Mass Merchants & Warehouse Clubs On-line Ordering Customer Service SelfCentre Service OEMs Strategic sourcing Selling Consortia Dealer Management Financing Insurance Collaboration
Raw Materials
Manufacture
Ship
Equipment or Facilities
Global platforms
Retail
Centralised purchasing
Inventory Management
Footprint reduction
Outsourcing
Dealers
Increases collaboration with suppliers and customers Increases collaboration among supply chain elements and business units Leverages new technologies and streamlines internal business processes In manufacturing company, involves 70% of total spend
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Inter - State
CENVAT + CST
Distributors Intra - State CENVAT + VAT BCD + CVD + SAD Imported CENVAT + CST Services ST Distributors Inter - State Manufacturing Plant
CENVAT*
V A T
Ware house
V A T
VAT* Domestic
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Slew of taxes add to the burden of book keeping leading to high overhead costs
Check post at state/city border considerably increase struck transit time leading to low Truck Turn around time and high transit inventories
Service tax payable to Goods and Transporter Agency (GTA) on out bound distribution cannot be adjusted against output Service tax liability. This has remained as a cost
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Handling Charges=1 TAX = 0 Freight = 6 CST = 5 Freight = 6 Gujarat Freight = 6 VAT=5 Freight = 2
Gujarat
VAT=5 Freight = 2 MP
MP
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Intra - State
SGST
Distributors Inter - State CGST CGST+SGST Imported CGST+SGST Services CGST + SGST Distributors Inter - State Manufacturing Plant
CGST *
CGST + SGST*
Ware house
Export Overseas
CGST + SGST*
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Manufacture profit
20000
12000 14000 Nil Nil
20000
Nil Nil 12000 8000
G Sum (A+B+C)
Sum (A+B+C/E+D/F) 1 Sum(C+D/E+F)
112000
126000 26000 5600 700 Nil Nil
100000
120000 20000 5000 Nil 600 400
H Distributor margin @ 5% on G I J K
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M Sum ( D + G+ H + I + J + K ) 2 Sum(I+ J +K )
N Retailer Margin @ 10 % on L
O VAT@12.5%
1617
Nil
CGST @12 %
Nil
1380
Q SGST @ 8 %
Nil
920
Sum ( M+N+O+P + Q)
145677
139800
Sum(O+P+Q)
Sum ( 1+2 +3 )
1617
28317
2300
23300
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IMPACT ON WAREHOUSING
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Octroi and entry tax are not in line with the spirit of GST although in some cases entry taxes are VATable
They impact the warehouse location decisions besides also the decisions on inventory and replenishments
2012 Deloitte Touche Tohmatsu India Private Limited
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There are two possible scenarios through which tax barriers would be removed
Scenario 1: CST rates would reduce to zero with no carry over of input credit across states
Scenario 2: Stock transfers are disallowed / taxed and inter-state sales are taxed with carry-over allowed
In both cases it would be no more required to have a warehouse in every state just to facilitate stock transfers and avoid CST
Organisations can and should design their networks purely on supply chain considerations and not tax considerations
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Overall primary freight cost could reduce due to fewer warehouse Rs/tonne-km primary freight cost could go down due to larger scale and better rate destinations Rs/tonne-km secondary freight cost could go down due to larger scale Savings due to reduced back-tracking Benefit
2012 Deloitte Touche Tohmatsu India Private Limited
Cost
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SERVICE TAX
Rate of Service Tax:
Rate of service tax is being increased from 10% - 12% The rate increase will be effective from 1st April 2012
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Provisions relating to positive list approach, namely, sections 65, 65A, 66, and 66A currently appearing in Chapter V of the Finance Act, 1994, will cease to operate from a date to be notified later, as and when the negative list approach begins to operate
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2012 Deloitte Touche Tohmatsu India Private Limited
Proviso to section 68 (2) has been introduced to shift service tax liability partly on service recipient and partly on service provider for three specified services, if
The service recipient is a body corporate; and The service provider is either an individual or a firm or LLP
Section 65B has been inserted to define several expressions. In particular, the expression India has been defined to mean:
The territory of the union as referred to in the Indian constitution Its territorial waters, continental shelf, exclusive economic zone or any other maritime zones as defined in the relevant Act The seabed and the subsoil underlying the territorial waters The air space above its territory and territorial waters, and The installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for prospecting, extraction or production of mineral oil and natural gas and supply thereof.
Changes are to be effective from the date of enactment of the Finance Bill 2012
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Taxable territory
Notified services
Compliance
CENVAT credit
The term taxable territory has been defined in the Act and only services provided in taxable territory will be liable to tax. Thus any service provided in the state of J&K will not be liable to tax. The Place of Supply Rules, 2012 will determine whether a service is being provided in J&K Moreover wherever the service provider is located in J&K but the service is being provided in taxable territory, in terms of the stated rules, the tax will be collected from the service receiver
The scheme is being introduced for three services where the service provider is either an individual or a firm or LLP and the recipient is a body corporate. The three services are as follows:
It is clarified that the liability of the two persons is for respective amounts and is not influenced by compliance or the lack of it by the other side
Service provider is allowed Cenvat credit of tax paid by him on inputs and input services. The respective portions have been attempted such that the credits available will be well below the amount required to be paid by such persons.
Hiring of a motor vehicle designed to carry passengers: (a) with abatement (b) without abatement Supply of manpower for any purpose Works contract service
Even though the above scheme can be given effect on enactment, it is proposed to time it with Negative List approach as a part of the comprehensive reform
In extreme situations the small service provider is also being allowed the refund of unutilized Cenvat credit if any, available with him. Suitable changes will be made in Cenvat Credit Rules, to this effect
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2012 Deloitte Touche Tohmatsu India Private Limited
Service
provider
Hiring of a motor vehicle designed to carry passengers: (a) With abatement 100% Nil
(b)
40%
60%
75%
25%
50%
50%
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2012 Deloitte Touche Tohmatsu India Private Limited
Section 67A has been inserted to prescribe the relevant date for the application of rate of service tax, value of taxable service and the rate of exchange Section 72A has been inserted on the lines of Central Excise Act to introduce provisions relating to special audit under specific circumstances The period of limitation under section 73 (1) of the Finance Act increased from one year to 18 months Section 83 has been amended to include settlement commission provisions and revision mechanism for the assessee aggrieved by the order of the Commissioner (Appeals), as applicable in central excise. Section 85 and Section 86 have been amended to reduce the time limit to file appeal before the Commissioner (Appeals) and revenue appeal before the Tribunal to 60 days to harmonies with the Central Excise provisions
The above changes will come into effect from the date of enactment of the Finance Bill, 2012 .
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2012 Deloitte Touche Tohmatsu India Private Limited
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