The Goods and Services Tax (GST) can be defined with three basic terms: - .
These three terms underline the basic system of the GST, which will spread its vines in all sections of the market, that is, from the consumers to the suppliers.
To understand GST in depth, let us understand these terms in detail.
“Comprehensive” refers to the extensive nature of the system. GST covers the entire hierarchy of all businesses, where at each stage of sale, a tax is imposed and in the end, the consumer pays the tax bracket percentage.
As mentioned previously about the “hierarchy of businesses”, the concept of “multi-stage” is the underlining feature present here. Each item sold in the market goes through various stages of production, beginning with the purchase of raw materials and tools for the first stage to the next stage of manufacturing the product. After the product is built, we reach the point of warehousing and then sale of product to retailers. We reach the final stage of the entire process, which is the purchase of the product made by the consumers in the market. GST will be hitting each stage of this process.
To understand this, we can observe the diagrammatic display given below :
Sale to Wholesaler/
Sale To Retailer
Final Sale To
To really understand how GST is “Destination-based”, we must draw a parallel between the previous format of VAT and Excise Duty that was being levied to the current form of indirect tax, which is the GST. Previously, when a product was manufactured, the Centre would place an Excise Duty at this stage and then the State would add a VAT tax here. With the all the established stages, VAT would be imposed at every stage and the entire “burden” would finally be borne by the consumer. The VAT system has always implied that the goods and services would face an increase in value and the consumer would shoulder this entire payment.
The system of VAT being levied can be understood via the images below:
Here, we can observe the difference between VAT and GST where GST is paid at every stage of the production and actually, lowers the final burden for the consumer. We can understand this better with an example. We assume that an entire manufacture process is happening in Rajasthan and the final point sale is in Karnataka. Since the GST is levied at each point of consumption, the state of Rajasthan can earn at the stages of manufacturing and warehousing but it would loose every form of revenue once the product moves into Karnataka for the final sale. This means that the state of Karnataka would earn revenue at the last stage of sale, emphasizing that GST is a “destination-based” tax.
With the implementation of GST, the framework of supply chains would start depending on customer service and the logistics cost. This leads to a benefit in multiple areas, from flexibility in demand and supply matching to the improvement in accuracy of business forecasting. Even warehouse optimization can be achieved due the new design of supply chains put in effect.
The various advantages that supply chains come across as an effect of the implementation of GST are :