Basic Principles of Goods Classification

Standardization in Logistics and Retail

The growth of supply chains and retail trade in the twentieth century, especially during World War II, led to the development and deployment of technology for goods, packaging, and cargo identification, since without solving this problem, it was impossible to send and receive shipments and keep inventory records.

Logistics has always played a significant role in the success of any enterprise. As technologies, including digital, developed, uniform standards emerged, and those business models penetrated the private sector. Certain industries, such as aviation, have their own highly specialized standards, but the GS1 standard has become the benchmark.

Retailers became the most active users of this standard, since supermarkets with large product assortments created an urgent need to keep inventories and record purchases at the checkout.

What is GS1?

The GS1 standards’ goals are to define the product items for identification, a unique identification codes, and the guidelines for reading it with special tools. They also aim to speed up and minimize errors during code entry into information systems.

GS1 is a neutral, international not-for-profit organization dedicated to the development and implementation of global standards and solutions to improve the efficiency and visibility of supply chains. The head office of GS1 is in Brussels (Belgium). GS1 has local Member Organizations with offices in 112 countries, including in all EU Member States.[1]

Over 5 billion barcode scans happen every day around the world. Over 1 million companies use the GS1 System of Standards worldwide. They are present in the following three key areas:

Scope	GS1 standards
Identification of goods and assets	GS1 ID Keys. Allow organizations to assign globally unique identifiers to products, documents, physical locations, and other entities. To create a GS1 ID key, an organization must become a GS1 member and receive a unique identification prefix.
Data collection	Data collection using a barcode (GS1 Barcodes) or electronic product codes as RFID tags (GS1 EPC/RFID).
Data exchange	GS1 ESDN. Master data management in the Global Data Synchronization Network. GS1 EANCOM®. Electronic exchange of transaction data (EDI). GS1 EPCIS. Event data (EPC Information Services).

GS1 national divisions run under licenses issued by the head office. Each national association receives a range of unique codes for their country which they can use for its members.

At the country level, the regional division assigns a unique code to each member of the association. Next, each member of the national association can issue its own personal product identifier for each distinct type of item for sale or SKU (stock keeping unit). Thus, such simple coding principles create a Global Trade Item Number (GTIN), a unique stock keeping unit identifier, that anyone else in the world cannot repeat.

For GTIN data encoding and ease of reading, most systems use one-dimensional, two-dimensional, or other standard barcodes, like a QR code or Data Matrix. GTIN can use prefixes, separators, and control digits to avoid reading and parsing issues. Different encoding standards exist, and common barcode reader software supports all of them.

If there is a need to code not only a product type but also a single item, GS1 introduces the concept of SGTIN (serialized GTIN). In this case, a numeric sequence unique for each item follows the separator.

The GS1 standard offers its own structure for catalogs of goods, works, and services to segment objects by class and ease the search. GS1 introduces principles for aggregating goods into larger groups and identification of those groups. This is necessary to simplify logistics when organizing transportation and storage of goods.

Why should tax authorities think about product codes?

The question arises, why do the tax authorities need all this and how does it affect tax collections?

Tax authorities often introduce the concept of goods taxed at preferential rates, for example, if they are socially important. To understand whether a reduced rate is valid, they must identify the stock keeping unit and cataloged.

By introducing online cash registers, tax authorities receive real-time sales data, but they also want to extract information about prices and consumption volumes from it. Of course, the tax authorities could process a non-standardized text string and try to get relevant information. However, without standards for describing stock keeping units and with a vast number of taxpayers using “Product 1” or “Product 2” as the product description, this approach is a dead end. Submitting an item’s sales data as a GTIN instead of a text description can be an excellent solution.

When implementing product labeling and track & trace projects, we can take the existing GS1 standard as the basis for coding stock keeping units (SKUs) and individual products to not waste a lot of time for no reason, a creative effort that taxpayers would have to finance.

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[1] GS1 AISBL. URL: https://www.gs1.org/