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The fragility of supply chains under proposed GST - Live Mint

Goods and services tax (GST) implementation is going to be a watershed in the re-imagining of India’s supply chains. GST will make supply chains more efficient, but there is a serious drawback in the current draft—GST makes supply chains vulnerable to upstream compliance-related disruption.

Consider a three-stage supply chain with an upstream Firm A selling goods or services to Firm B which then sells to downstream Firm C. Assume a tax rate of 20%. Firm A sells goods worth Rs1 crore to Firm B, raises an invoice of Rs1.2 crore, gets paid, and deposits Rs20 lakh tax. Firm B now raises an invoice of Rs1.44 crore (Rs1.2 crore plus Rs24 lakh GST) on Firm C. Firm B is eligible for input tax credit of Rs2

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