Page 1 ICAI National Conference GST Presentation July 2015 EY refers to the global organization, and/or one or more of the independent member firms of.

Page 1

ICAI National Conference GST Presentation July 2015

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global LimitedFor discussion purpose only

Shankar BalaSenior Advisor – Tax and Regulatory Services,Ernst & Young LLP, Hyderabad

Page 2ICAI National Conference 2015

1 GST - Introduction

Contents

2

3

4

5

6

7

Legislative Framework

GST Council

Administrative Framework

Impact of GST

Aberrations in the envisaged GST

Transitional Requirements


GST – Introduction


Introduction to GST

A comprehensive levy on supply of goods and services across the value chain

Classic GST does not differentiate between ‘Goods’ and ‘Services’

Government effectively collects tax on the value addition/ gross margins of each transaction

Taxes paid on inputs are available as credit against the output tax liability

Levied on the value added at each stage of economic activity through out the supply chain

Taxes are borne by the ultimate consumer of goods


Benefits of GST

Business free from taxes

Eliminates multiplicity of taxes

Eliminates dual taxation (vat and service tax) on same transaction

Eliminates cascading of taxes

Achieves uniformity in taxes


GST – An Excellent Enabler for “Make in India” Theme

Right Design with broad-base and moderate rates will reduce cascading

Drive increased total productivity and competitiveness with reduced capital cost and through improved resource allocation

Will provide significant boost to investment and growth of the economy


India GST Progress and Roadmap

Consensus between Centre & State on power sharing

Agreement on the Constitutional Amendment

Bill (CAB)

Agreement on Taxing framework, more specifically Place of Supply Rules

Formation of GST Council and Issue of draft regulations & GSTN framework

1

4

7

Passing of the CAB (need for representation

before passing)

State fears on loss of revenue &

compensation framework

GSTN – Design & system architecture

Drafting of Model GST Legislation & Industry

feedback

2 3

5 6

8 Roll - out9


GST – Status update

GST Progress

Consensus between Centre & State

State Compensation

Framework

Agreement on the CAB

Agreement on taxing framework

GST – Design & System Structure

CAB voting and approval

GST Council & draft regulations

Drafting of GST Regulation

GST rollout & implementation

Dec’14

July/ Aug’ 15

Sep’15

Nov’15 Nov’15

Dec’15

Jan’16

Tabling CAB*

CAB Approv

al

State approv

al

GSTN roll out

Draft Law

Final Law

Prepare implementati

on

GST - on all goods & services other than alcohol

Dual GST – CGST plus SGST

Integrated GST (IGST) – On inter-state supplies

Additional non-creditable origin-based 1% tax on inter-state supply of ‘goods’

Shift of taxing principle – Origin to Supply

Goods and Services comprehensively defined

Intangibles, Works contract – goods or services?

* Constitution Amendment Bill

Salient features of GST


GST – Legislative

Framework


Current framework

State VAT CENVAT/Service Tax

DistributorsResellers

Primary Producers

Manufacturers

Service Providers

ServiceResellers

Real EstateDistributorsResellers

Primary Producers

Manufacturers

Service Providers

ServiceResellers

Real Estate


Proposed GST framework

GST

DistributorsResellers

Primary Producers

Manufacturers (less

exclusions)

Service Providers

ServiceResellers

Real Estate


Salient Features of GST Bill

Proposed implementation date –

GST is on “supply of goods and services” other than on alcohol for human consumption

Petroleum products to be included in GST base at a future date by GST Council

Dual-GST – Central GST (CGST) and State GST (SGST) on intra-state supplies

IGST on inter-state supplies (including stock transfers) and imports

Goods - “Goods includes all materials, commodities, and articles”Service – “Anything other than goods”

1% origin tax on inter-state “supplies” of goods, non-creditable (including stock transfers)


Central Taxes State taxes

► VAT► Entry tax ► Luxury tax► Tax on entertainment and amusement not

levied and collected by Panchayat / Municipality / Regional Council / District Council

► Taxes on lottery, betting & gambling► State cesses & surcharges (relating to supply

of goods & services)

Salient Features – Taxes to be Subsumed

► Basic Customs Duty and Export Duties► Terminal taxes on goods or passengers,

carried by railway, sea or air; taxes on railway fares and freights

► Taxes other than Stamp Duties on transactions in stock exchanges and futures markets

► R&D Cess?

► Stamp Duties► Taxes on lands and buildings► Taxes on consumption or sale of electricity► Taxes on goods and passengers carried by

road or on inland waterways► Taxes on vehicles► Tolls► Taxes on professions, trades, callings and

employments

Taxes to be subsumed:

Taxes not to be subsumed:

► Excise Duty► Excise Duty levied under the Medicinal &

Toiletries Preparation Act► Countervailing Duty in lieu of Excise Duty► Special Additional Duty of Customs► Service tax ► CST► Surcharges & Cesses (relating to supply of

goods & services)


Tax Rates

GST rates to be decided by the GST Council

Revenue Neutral Rates (RNR) estimated by

NIPFP

► Rate structure: ► Exempt goods and services► 1% for precious metals and articles► 12% for basic necessities► 27% Standard Rate (all other goods and services)

► These are combined CGST+SGST rates► Extreme discomfort with these rates and their accuracy► NIPFP has been asked to rework based on latest revenue data available

for 2012-13 or 2013-14

Various rate options under consideration as of now:► Precious metals: Special rates► Others

►12% ►12% and 18% / 20% ►12% and 25+%


Credit MechanismTaxes paid on inputs are available as credit against the output tax liability of each transaction

Input CGST

Output CGST

Output IGST

Input SGST

Output SGST

Output IGST

Input IGST

Output IGST

Output SGST

Output CGST

GST credit mechanism


Current tax structure Vs Proposed GST Framework

Activity Current tax structure Proposed GST Framework

Import of goods ► Customs duty (BCD, CVD and SAD) + Entry tax

► BCD + IGST

Inter-state sale / purchase (supply) of goods

► Excise duty + CST + Entry tax

► IGST + 1% origin tax (non-creditable)

Intra-state sale / purchase (supply) of goods

► Excise duty + VAT ► CGST + SGST

Import of Service ► Service tax ► IGST

Inter-state sale / purchase (supply) of service

► Service tax ► IGST

Intra-state sale / purchase (supply) of service

► Service tax ► CGST + SGST

Manufacture ► Excise duty ► No duty

(supply) Stock transfer (inter-state)

► NIL ► IGST + 1% origin tax (non-creditable)

Exports ► Duty Free ► Zero rated

All surchage and cess (in so far as they relate to supply of goods or service) subsumed in GST

Specific cesses levied under different Acts by Parliament will remain. State cesses will go


GST Council


Salient Features – GST Council

GST Council

Quorum of council meeting

Required majority for council decisions

► Union Minister of Finance (Chairperson)► The Union Minister of State for Revenue/Finance► The State Ministers (of Finance or other Minister nominated)

► 50% of the total members

► 75% of the weighted votes of the members present and voting

► Weights: one-third for the Centre, and two-thirds for all States taken together

To be formed by the President within 60 days from the coming into force of the Constitutional Amendments


Salient Features – GST Council

GST Council to make recommendations on key aspects of GST

► Taxable base, exempt products ► Principles of levy, apportionment of IGST, principles

governing place of supply ► Threshold limit ► Rates including floor rates with bands of GST► Special rate/s for specified period to raise additional

resources during natural calamity ► Special provisions for Arunachal Pradesh, Assam, J&K,

Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, HP, and Uttarakhand

► Date for application of GST to petroleum products

Council decisions are recommendations, which need to be ratified by Parliament and State Legislatures

Council may decide modalities for dispute resolution


GST – Administrative Framework


GST Network

Tax Payment

Return

Registration

GST Network – Salient FeaturesA common portal providing three core services common across the country

Limited Service Model- Mandatory


Assessment / Refund

Registration

Audit

Inter-State supplies

Payments

Returns

GST Network

GST Network – Optional Full Service Model


► POS Rules determines ‘place of supply’ for a registered dealer to be the place of business

► Optional separate registration – Manufacturing and Trading

► Threshold – Pan India

► Registration Application: Through GST Network - to be approved within 3 days

► Approval by both State / Centre

► TIN - 15 digits alpha-numeric

► First two digits-State Code (Numeric)

► Next 10 digits (3rd to 12th) - PAN (Alpha-numeric)

► Next 2 (13th & 14th) digits for sequence of vertically disintegrated business (accommodating up to 35) (Numeric)

► 15th digit will be (Numeric)- Check digit

Registration1

GST Network


► Common form – IGST, CGST and SGST

► Periodicity: Monthly, to be filed by 20th day of next month

► Every registered dealer to upload his Sale–list, by 10th day of next month

► B2B -Invoice wise (Tax rate wise invoice to be issued)

► B2C- Total Supply

► Purchase-list (B2B) will generate through electronic system

► Purchasing dealer will be able to view the list of sales made to him (his purchase-list)

► Reconciliation for any difference up to 17th day of next month

► A draft return will be prepared based on the information of Sales and Purchases to which the taxpayer has to validate

► Tax to be paid before uploading return; no upload permitted without payment

Returns

GST Network

2


► Separate challans for IGST/CGST/SGST

► Payment head/sub-head being different

► May be allowed to pay as one transaction but in different tax-heads

► Different challans will generate

► Payment before uploading of return

► Upload denied unless tax is paid

Tax Payment

GST Network

3


Impact of GST


Conception

►Firming of business model►Location of the factory/operations►Make or Buy decisions►Formulation of structures

Operations viability / Competitive advantage

►Proper structuring of operations – with focus on documentation►Setting up of Supply Chain►Logistics and Distributions arrangements►Project Management

Impact - from Conception to Operations to Sustenance - cuts across all functions


►Dual GST – co-operative federalism ,an euphemism►Non-creditable origin tax of 1%►Real Property out of GST and hence the credit chain broken►Taxes outside the GST – R &D Cess►Provision for floor rates with band by empowering GST Council

GST as envisaged – not in pristine form – with glaring aberrations


GST will transform the way we do business

► Sourcing strategy► Distribution strategy► Make v/s Buy► Supply / Inventory management

Tax Accounting Supply chain

Capital projects Business analytics

Information Technology

Compliance Change management

► Business structure changes► Incentive regime► Working capital / cash flow

► GST awareness training► GST communication► Organization structure

► GST registrations► Tax credit transitions► Return reporting

► Costing / Pricing► Forecasting► Contract arrangement

► Procure to pay► Order to cash► Tax credits

► Tax payments ► Tax accounting

► System Changes► Compliance

► Auditability► Automation

GST


New formats of invoices, waybills,

returns/ challans etc.

Classification of goods and services

Compliance

Key compliance requirements on introduction of GSTKey compliance requirements on introduction of GST

Manner of computation and payment

Statutory Forms – likely to be discontinued

Reporting of accumulated credits

Migration of registrations - PAN

based taxpayer identification number

Rate change to be implemented

Redesign IT Systems

Periodical returns

Compliance Requirements – Transition

► With GST back to

Thank You

Shankar BalaSenior Advisor – Tax and Regulatory Services,Ernst & Young LLP, Hyderabad

Page 1 ICAI National Conference GST Presentation July 2015 EY refers to the global organization, and/or one or more of the independent member firms of.

Documents

implementation gst

india gst progress

gst introduction contents

taxes icai national

value chain classic

alcohol dual gst cgst

sgst integrated gst

benefits of gst business