Post on 22-Jan-2018
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GST - Preparing for the Transition
CREDAI16 December, 2015
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Table of contents
Progress so far
Proposed Framework
Snapshot on Reports Issued on GST Business Processes
01 02 03 04
Potential Impact
05
Next Steps
06
Key Aspects of Draft GST Law
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Progress so far
Drafting of GST Law
Constitution Amendment Bill
Progress on IT infrastructure
Drafting of GST Law
Constitution Amendment
Bill
• Passed by Lower House of Parliament, pending before Upper House
• Convergence of views on disputed issues between ruling and opposition parties
• Bill expected to be taken up and passed in ongoing Winter Session of Parliament
• GST Network (GSTN) formed, responsible for IT readiness before GST
• Funds allocated to State Governments for IT up-gradation• Large Indian IT Company selected for GST portal
implementation; expected completion date – 31 March 2015
• Model GST legislation drafted and shared by Central Government with States
• First cut of Draft law available in public domain• Four official draft documents on registration, payment, refund
and return process released in October 2015
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Proposed Framework
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Proposed structure
Framework Coverage Rates
Dual GST for Centre and States, IGST on inter-state transactions
Additional 1% tax proposed on inter-state supplies of goods?
Place of Supply Rules for determining ‘situs’ of services and goods
Excise duties/ Service tax/ CVD/ SAD
VAT/ Entry tax/ Octroi/ Purchase tax/ Entertainment tax/ Luxury tax
Cesses & Surcharges on goods & services supply
Varying rates proposed, no final consensus yet
Indications of multiple slabs with rates less than 20%
Free credit flow - No cross credit between CGST & SGST;
Order of utilisation of IGST
1 2 3
Petroleum products, alcohol, electricity likely to be kept outside GST
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IGST model – Levy and Credit#
State A State B
Output IGST 25
Less:
Input IGST 10
Input CGST 05
Input SGST 05
Net IGST payable by D1
05
Inter-state purchase - 50IGST @ 20%10
D1
Local purchase - 50CGST @ 10% = 5SGST@ 10% = 5
Input credits D2
IGST (CGST + SGST) 25
Customer
Local sale - 140CGST 14SGST 14
CGST SGST
Output GST 14 14
Less: Input IGST 14
Input IGST 11
Net SGST payable by D2 03
Ord
er of u
tilization
Order of utilization
Inter-state sale/ stock transfer - 125
# Without considering 1% additional tax
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Multiple Rate structure – No final consensus yet
Rates proposed by NIPFP to sub committee ― 16 different rates scenarios, including a two rate GST, three rate GST and four rate GST
― Rates of 14%, 16%, 20%, 24%, 27% suggested in the report
Chief Economic Adviser led panels’ recommendation
― Revenue neutral rate of 15%-15.5%
― Standard rate of 17% to 19%, with a lower rate of 12% for essential goods and higher (demerit) rate of 40% for luxury cars, tobacco products
― Removal of 1% additional tax
Rate unlikely to be made public before a date near to implementation & Socio-political consideration expected to be key driver
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Snapshot of Joint Committee Reports on GST Business Processes
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Background
Joint Committee formed under the co-convenership of the Additional Secretary (Revenue), Government of India and Member Secretary, Empowered Committee has released four reports on business process under GST
GST registration – This report covers the situations wherein supplier of goods and services would be required to obtain registration. Further, the report also covers process for obtaining registration in different scenarios
A
GST refund – This report covers situations which would entitle the taxpayers for refund along with the process to be followed for obtaining the refund from tax authorities
B
GST return – This report covers various types of returns and periodicity of filing each returnC
GST payment – This report sets out the mechanism for payment of liability under GST regime along with time lines for making the payment
D
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GST return – Classic reconciliation problem (Illustration)
GSTN
30th January – Sale Invoice
10th February -Upload
12th February –Purchase Report Transaction reflected
Internal reconciliation for January – Purchase not reflected in ERP
14th February
16th February –Delivery
Internal reconciliation for February –Additional purchase item in ERP
1st March
Seller Buyer
1
2
3
4
5
6
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GST return – Key aspects
Multiple returns/ reporting requirements – Significant increase in compliances
Reconciliation requirements – Need for robust IT systems, vendor education, appropriate modifications in contract terms, etc.
No option to revise returns
Input tax credit available from date of application - No Input Tax credit in respect of goods and services procured pre-registration?
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Key aspects of draft GST law
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Draft GST law – Key aspects
Place of supply of services - Supply to Registered person – Location of SR
Supply to Unregistered person – Location of SP
Services in relation to Immovable property – Location of Immovable property
Barter, exchange, stock transfers, services within entity (self service) subject to GST
1% composition scheme (no ITC) – threshold 50 lakhs
Transaction based valuation (like value or computed value in other cases), Free of cost supplies subject to GST
Place of supply of goods – linked to delivery
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Draft GST law – Key aspects (Cont’d..)
Time of supply of goods – earliest of date of removal, invoice, payment, date on which the receipt of goods are shown in books of accounts
Time of supply of services – contingent of timely issue of invoice & payment or receipts shown in books
Place of supply of goods – Linked to delivery
Liberal credit provisions – ‘Attributable to the purposes of business’, no time limit prescribed
Order of utilization of credit prescribed
Restrictions of credit motor vehicles, HSD, personal use, works contract of building etc.
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Potential Impact
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Current Tax Regime & GST Impact – Sale of Built-up Area
Outside India India
Developer
State A State B
Vendor
BCD - CostImport GST
Import of goodsCustoms duty - Cost
1
Local purchasesExcise Duty - Cost VAT
Local Supplier
GST
4
Inter-state purchasesExcise duty, CST -Cost
Inter-StateSupplier
IGST & Additional 1%
Tax
3
ServicesService Tax
Service provider
6 GST
Customer
Sale of Flats*Service tax
VAT7
Works contractVATService tax
Contractor
5
GST
Transfer of development rights/ Long term leasing of
landService Tax?
Land Owner
2
GST?
GST
* Payment of service tax at the abated value of 25%/ 30%
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Current Tax Regime & GST Impact – Manufacturing
Outside India India
Services- Architect, Brokerage etc
Service Tax
Local purchasesExcise dutyVAT - Cost
Renting of immovable property
Service Tax
Inter-state purchasesExcise dutyCST - Cost
State A State B
Service provider
Inter-StateSupplier Local Supplier
Customer
GST
IGST & Additional 1% Tax
GST
Vendor
BCD - CostImport GST
Import of goods Customs duty - Cost 1
2
3
4
6Developer
Current Tax Regime & GST Impact – Renting of immovable property
Works contractVAT, Service tax-
Cost
Contractor
GST –Cost??
GST
5
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Change in tax rates
Present Under GST*
Inputs – Cement Excise – 12.5% + Per MT
levy
VAT – 12.5% - 14%
~ 12% to 20%
Services
* Without factoring 1% additional tax on Inter-State supplies of goods
14.5% ~ 16% to 18%?
Inputs – Iron & Steel
Excise – 12.5%VAT – 4% ~ 12% to 20%
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Civil Work: Savings to Contractor
2
1
ContractorInter- state purchases
Savings in tax cost - Room for re-negotiation of Contract value
State AState B
Local procurements
Particulars Current GST
Purchase 50 50
Excise Duty 6.25VAT@12.5%/GST @22%
7.03 11
Less: Credit 0 -11
Total Tax Cost 13.28 0.00
Particulars Current GST
Purchase 50 50
Excise Duty 6.25CST @ 2%/GST @22%+1%
1.13 11.5
Less: Credit 0 -11
Total Tax Cost 7.38 0.50
Developer
Works contractVAT 4%
3
Contractor paying VAT under composition scheme
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Sale of Built-up Area – Output TaxCurrent Regime GST Regime??
Rate Amount Rate Amount
BSP Exclusive of Tax 100 100
Service tax 4.35% 4.35VAT 1% 1GST 18%/ 12%?? 18/ 12
BSP Inclusive of Tax 105.35 118/ 112
Total Output Tax 5.35 18/ 12??
Standard GST Scheme - Need for concessional GST Rate with abatement (on account of land) and liberal credit regime
Revision of BSP in view of availability of credit of tax paid on goods?
Composition GST Scheme – Rate and Impact of Input GST needs to be assessed
1
2
3
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Other Issues
Taxability of Barter Transactions – JDA with built-up area sharing
Taxability of JDA – Cash flow impact
Taxability of long term leasing – Cash flow impact
Exclusion of land – Need for reversal of credit??
Taxability of statutory levies such as EDC/ IDC
Credit regime for Renting Operations
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Multifold impact of GST
Cash Flows
Fiscal
Business Processes
Accounting
IT systems
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Transitional Impact
Transfer of unutilized
credits and treatment of transitional
stock
Treatment of on-going/ existing
contracts
Vendor / Customer –
Price renegotiation
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Impact assessment: IT System
ERP Version
ERP Tax Procedure
ERP Business scenarios
ERP Indirect tax mapping
Master Data readiness
Statutory compliance
1. ERP version checkDetermine if current ERP version is compatible with GST
2. Tax procedure assessmentAssessment of appropriate Tax procedure to support GST
3. Business scenario coverageDetermine if relevant business scenarios are mapped in the system for broad GST coverage
4. Country India solutionCheck system configuration for relevant business scenarios
5. Master data assessmentMaster data readiness for smooth GST transition
6. Statutory reporting complianceSystem readiness for Pre-GST audit
It is necessary for companies to review their IT systems to assess their technical and process readiness
With the impending GST regime, it is imperative for organizations to assess their current state of the ERP system to help ensure that it is ready for GST.
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Preparing for GST – Best Practices
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Next Steps..
Set-up a core GST Committee – having representatives from Finance, Projects, IT and Marketing teams
1
Impact assessment
• Fiscal
• IT
• Projects
• Contract2
Advocacy – Preparation of detail paper covering
all tax issues2A
Drawing up a detailed implementation plan
2B
Create awareness
across business functions
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