In our previous blog, we explained about developing warehousing infrastructure. Here we will focus on the impact of GST on Warehousing In India. We write a separate blog about this as it is one of the popular question asked by foreign companies who import goods in India, looking for a warehouse in India, sell in India, developing & managing the distributor network in India. GST coming to the fore and because of its simplified and uniform approach, there is surely going to be a more positive impact of GST on warehousing in India. As warehouses are an integral part of each supply chain, read on how things have changed since GST implementation.
How things have changed since GST implementation (KEY Points for Business)
In July 2017, a revolution in the tax system of India took place. The complicated tax system of Value Added Tax (VAT) became history, and a simple system of Goods & Services Tax (GST) came to existence. After almost 10 years of hard work, including:
- Designing framework of GST
- Consolidating more than 25 tax rates
- Subsuming state borne taxes
- Getting rid of cascading taxation collection
- Getting nod from the Indian polity
Finally, the Government of India launched GST, under a revolutionary intent of “One Nation One Tax“. Under the VAT regime, the state government was able to waive off tax (to generate employment) and could adjust the rate of tax on a particular product found in plenty in any particular state.
Later, once the central government intervened, the state governments had the authority to charge ‘surcharge’ of up to five percent (5%). As all this happened for more than 15 years, India had varying tax rates between states for the same product.
Secondly, due to the complicated compliance of interstate movement of goods, commonly known as C-Form & F-Form transactions, opening up a warehouse in states of business became a necessity.
The idea was to invoice the product at a reduced tax rate in place of C-Form and F-Form (Concession Forms). To collect these forms, a complex procedure of compliance was followed, where the sales tax department was acting like a ‘tax collector’, who always tried to levy more and more taxes rather than issuing the concession forms, which if not issued would mean penalty and interest at the rate of 18% per annum.
Due to the complex compliance issues under VAT as well as the differences in rates, firms always had to open warehouses in many states. With VAT registration, at least two more registrations were also required – shops & establishment, and professional tax to operate from that state warehouse.
In the case of trading of goods and especially when supplying to a manufacturer, the traders needed to take registration through the excise department. Only with this registration, the traders were allowed to pass on the excise which he received from his supplier (Input Credit) to the manufacturer or to other traders who wished to sell goods to the manufacturer. For excise to become operational, that trading warehouse mandated to follow certain guidelines which any excise officer could verify, at will. No need to mention that as many registrations, that much compliance.
Amongst the major hurdle in the applicability of VAT was that of road permits. Road permits of every state allowed entry of vehicles. Without road permit entry of vehicles in any of the 29 states wasn’t allowed. These road permits were issued by the consignee state’s sales tax department. There were instances in which goods were apprehended at the state border in the absence of the road permit, without giving any cognizance to the supplier’s plea. Suppliers were suffering for such delays in transit, till the time goods wouldn’t reach the customer. There were limitations to the road permits for unregistered dealers and end customers in the VAT regime. Warehousing teams were supposed to be trained, not only in the movement of goods but also in the process of Road Permits, as road permits were the key to the commercial processes.
Above were the main routine issues, out of many others, which slowed down the supply chain in the VAT regime and were also discouraging to the overall business in India. The industry was eagerly waiting for GST as it wanted to get rid of such complex procedures.
With the advent of GST in India, the practical and routine operations, which industry was suffering, found its way as the course was corrected in all the above main points. Following were the changes that were brought in by GST to address the above:
A) GST brought in one tax regime for the entire country. The rates of GST are decided by the Central Government, and the tax rate remains the same for any product across the country. This means that firms are not required to open warehouses across states just to avail the benefit of reduced taxes/exemption or to get rid of compliance with regards to Form-C or Form-F transactions.
B) Compliance for various concessional forms has been abolished. This was the most significant development as the industry was suffering a lot, especially on account of interest and penalties, if it couldn’t submit the concessional in place of the sales that happened 3-4 years ago. Today, concessions are not extended based on the place of dispatch. This has simplified the warehousing set up process, as well. The industry is engaged in the ‘consolidation’ of warehouses rather than having state borne warehouses. This reduced the per-transaction cost.
C) Another advantage of GST is that the entire tax is ‘input-able’ (available as input credit). This means that the entire supply chain needs to apply the GST and set off the input tax, as is available on the purchase. Transferring tax on a particular invoice-EXCISE transaction is passé. The customer has to pay the GST as it’s a ‘destination’ based tax, which is different from VAT, which though wasn’t ‘origin’ based but wasn’t very different from the general sales tax, especially in case of Excise through the trading channel. Today, with GST, the traders don’t have to take a separate registration for Excise, which allows them to store the goods in a more consolidated and efficient manner. Compliance related to Excise is no longer applicable. Warehouse consolidation improves the management of goods and also allows movement from one warehouse to states without a change in the rate.
D) For the inter-state movement of goods, road permits that were supposed to be provided by the consignee are no longer required. A road permit from the customer, which was a mandatory document under the VAT regime, has now been changed to E-Waybill, which can be generated by the transporter/supplier of goods for the movement of goods. This ease to generate the E-waybill by the supplier/nominated supplier of goods is path-breaking, as the possibility of a loss of sales in the absence of this transit bill (E-waybill) doesn’t exist anymore. A warehouse may not need a person for handling the compliance of E-waybill, as this can be generated even by the transporter.
GST brought ease to the business scenario in India by other means, as well. Warehouse consolidation is something, which the industry celebrated the most, as it brings economies, resulting in an efficient and economical supply chain. For the last 20 years, Maier+Vidorno has been addressing these business needs of overseas companies. Our registrations allow us to import a vast number of products into India. We have extensive distribution networks and warehousing options for all types of goods. We also offer support services in areas of sales service, Financial Due Diligence, accounting, and HR consulting. Contact us to know more.