Will GST Prove To Be A Game Changer For Auto Sector · 8/4/2016 · Concept of ‘transaction...
Transcript of Will GST Prove To Be A Game Changer For Auto Sector · 8/4/2016 · Concept of ‘transaction...
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Will GST Prove To Be A Game Changer For Auto Sector ?
04 August 2016
EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global LimitedFor discussion purpose only
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GST – The Journey So Far….
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The Journey So Far …..
Revised GST Constitution Amendment Bill tabled in the Lower House of Federal Parliament on 19 December 2014
Passage of GST Constitutional Amendment Bill in Lower House on 6 May 2015.
The Bill presented in Upper House on 12 May 2015.
GST draft law and rules is released in public domain in June 2016
GST Constitution Amendment Bill passed in the Upper House on 03 August 2016
GST
2015
GST
2014
GST
2016
Bill referred to Select Committee
Report of the Select Committee received and accepted by the Cabinet of Ministers
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GST – The Road Ahead…
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► Software for registration, return and payment ready as per Government
► Hardware supply to start soon
► CBEC, GSTN & States IT back-end likely to be ready by Nov 2016
► Testing of software with live transactions by January 2017
IT Infrastructure
► Training of central and state government officers on new law
► GSTN to provide IT training to officers
► Training modules to be prepared by Government for small traders
► Guidance notes on various modules to be issued for ease of understanding for businesses
Change Management
The Road Ahead….
► Approval of 16 State Legislative Assemblies
► Presidential Assent
► Setting up of GST Council
► CGST and IGST law to be cleared by Parliament and SGST laws by respective State Assemblies
Establishing Legal Framework
Dec - 16
Feb - 17
Mar - 17
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Key Challenges
► Rate structure
► Exemptions
► Threshold limit
► Principles of apportionment of GST between States and Centre
► Forging consensus on model GST law
► Division of administrative control between States and Centre
► Smooth transition
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Overview of GST in India
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Current Indirect Tax System In India vs GST
Primary Producers
Distributors
Resellers
Service Providers
State VAT/ CST
Primary Producers
Manufacturers
Service Providers
ServiceResellers
Real Estate
Primary Producers
Distributors
Resellers
Service
Providers
CENVAT/Service Tax
Primary
Producers
Manufacturers
Service
Providers
Service
Resellers
Real Estate
Primary Producers
Distributors
Resellers
Service Providers
GST
Primary Producers
Manufacturers(less exclusions)
Service
Providers
Service
Resellers
Real Estate/
Petroleum
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Proposed GST framework
►Centre and States to levy GST on common base (CGST & SGST)
Dual-GST
►Taxing principle shifts from origin to supply destination
Place of Supply
► Integrated-GST (IGST) on inter-state supplies / imports
►NIPFP initially recommended CGST+SGST rates of 12% for basic necessities & 27% for all other goods & services
►Extreme discomfort with these rates –NIPFP asked to rework based on latest revenue data; second report not yet made public
►CEA report suggests RNR of 17.5%-18.5%; recommendations not accepted by Empowered Committee
►Various rate options being considered:
► Single rate of 12% + Special rates
► Two rates of 12 & 18-22% + Special rates
►States to have powers to determine SGST rates within narrow band –different rates could make invoicing & compliances extremely complex
GST rates
Interstate supplies/ Imports
►Exemptions to be kept at minimum – Likely to be aligned with exemptions generally provided under VAT
Exemptions
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GST credit mechanism
Taxes paid on inputs are available as credit against the output tax liability of each transaction
CGST
CGST
IGST
SGST
SGST
IGST
IGST
IGST
SGST
CGST
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Why EY
Impact of GST on Auto Sector
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Change in Excise duty and VAT/CST Structure
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Duty structure on Manufacture of Vehicles under Current and GST Regime
Manufacture and sale of Vehicles
Current levies Proposed GST rate
Excise NCCDAutomobil
e CessInfra Cess VAT Total Tax CGST SGST IGST
Total Tax Cost
In case of
CGST +
SGST
In case of
IGST
Petrol, LPG and CNG Motor
Vehicles principally designed for the
transport of persons of a cylinder
capacity not exceeding 1200 cc and
length not exceeding 4000mm
12.50% 1.00% 0.125% 1.00% 14.5% 31.25% 10.00% 10.00% 20% 20.00% 20%
Motor cars and other motor vehicles
principally designed for the transport
of persons of a cylinder capacity
exceeding 1500 cc
27.00% 1.00% 0.125% 4.00% 14.5% 51.28% 14.00% 14.00% 28% 28.00% 28.00%
ILLUSTRATIVE
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Component Manufacturers
► Increase in cash outflow on imported goods and services, as well as domestic services
► R&D Cess not likely to be subsumed – Additional cost
► Reduction in cost on inter-State procurement – IGST to be creditable
► Increase in cash outflow on interstate stock transfers from factory to warehouse due to IGST; valuation may also be a challenge
► Disputes with VAT authorities on concept of pre-determined sales to OEMs to go away
► No accumulation of SAD credits
► For after market, concept of MRP valuation for Excise purpose will go away
► Raw materials such as natural rubber may become more expensive
► Import under FTA vs Make in India
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OEMs
► Ambiguity regarding GST rate structure
► Ambiguity regarding continuation of cesses – Auto Cess, NCCD, Infra cess etc.
► Increase in cash outflow on imported goods and services, as well as domestic services
► Reduction in cost on inter-State procurement – IGST to be creditable
► Reduction in cost due to enhanced credit pool for sales companies
► Concept of ‘transaction value’ retained in Model GST law; present challenges may continue under GST (eg – PDI charges, advertisement by dealers etc)
► Value added services to become costlier (extended warranty, AMCs etc) due to increase in tax rate on services
► Treatment of dealer incentive schemes and discounts etc need clarity
► No clarity on fate of MOUs signed by OEMs for grant of incentives/ subsidies by State governments
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Dealers
► Increase in credit pool – GST paid to OEMs to be completely fungible against output GST on sales
► Cost on account of local services to reduce as GST will be creditable – However, higher GST rate on services may lead to increase in upfront cash outflow
► Point of taxation for sales may shift to receipt of advance payment from customers – adverse impact on cash flows
► Treatment of discounts to customers and exchange schemes etc needs clarity
► No clarity on the rate to be applied on ancillary services provided to customers such as PDI charges, parking charges etc.
► Free of cost service and goods provided to taxable persons to be liable to GST –Free servicing provided to company vehicles, tourist/ commercial vehicles etc.
► No visibility on GST treatment for used/ second hand vehicles
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Service providers – Transporters/ 3PLs
► Current abatement under Service tax may not be there under GST, making services more expensive
► Liability to pay GST may be on forward charge basis
► In case payment of GST is on forward charge basis, possibility to claim credit of GST paid on purchase of vehicles, spare parts as well as input services
► Cash flow may increase on input services – repair and maintenance of fleet etc due to higher rate of GST
► Fuel kept out of GST purview for the time being – may lead to cascading of taxes
► Services may be received during transit in various States – toll etc. Whether credit of GST on such services can be claimed?
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Questions?
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EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
© 2015 EYGM Limited. All Rights Reserved.
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
© 2016 EY LLPAll Rights Reserved.