Implementation of Goods and Service Tax (GST) in India. Opportunities and Challenges for CMA

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1 Implementation of Goods and Service Tax (GST) in India Opportunities and Challenges for CMA CMA Rajesh Shukla At ICWA Chapter meet 14 th August 2015 Aurangabad

2 Present Indirect Taxation Structure 2

3 Background of GST What is GST Why GST Broad based consumption tax Integration of prevailing indirect taxes to ensure uniformity Unified tax on both on goods and services Levied at each stage Goods and Services tax ( GST ) Preventing cascading effect of taxes Simplified compliances On value added to goods/ services at each stage Credit available across goods and services Introduced with the objective to eliminate tax cascades Availability of credit even for inter-state procurements

4 Expectations from GST Single National Market through harmonisation of laws Removal of cascading of taxes Simple, transparent tax administration through IT interface Plugging of revenue leakages through automation Subsuming of multiple taxes Reduction in compliance cost Expanding tax base to cover larger economic activities Improve competitiveness of domestic industry

5 Framework of Goods and Services tax in India Framework Dual GST IGST + AT* CGST and SGST IGST +AT* Intra-State transactions Inter-State Sales and Branch Transfers *Additional Tax only on goods

6 Framework of Goods and Services tax in India Basic Duty of Customs Additional Duty of Customs and Cess on such duty Coverage Indirect taxes to be subsumed Indirect taxes to be continued Central Excise Service tax VAT/ CST* Entry tax not in lieu of Octroi Entry tax in lieu of Octroi Octroi, LBT and Cesses Entertainment tax and Luxury tax Municipal/ Property tax State Excise on Liquor Stamp duty Motor Vehicles tax

7 Framework of Goods and Services tax in India Year Standard Goods Concessional Services Year I 20 percent 12 percent 16 percent Year II 18 percent 12 percent 16 percent Year III onwards 16 percent 16 percent 16 percent Rate of tax Goods Services Year Standard Goods Concessional Services Year I Year II ~27 percent? Year III onwards

8 Framework of Goods and Services tax in India Credit Output Liability Central GST ( CGST ) IGST IGST, CGST, SGST Cross Credits State GST ( SGST ) CGST CGST, IGST Inter-State GST ( IGST ) SGST SGST, IGST

9 Threshold Following limits are under discussion. (lower limits for some states.) Annual Financial Turnover Remarks Up to Rs. 25 lakhs Exempt from GST From Rs. 25 lakhs to Rs. 75 lakhs Composition option maybe given without ITC Rs. 75 lakhs to Rs. 100 lakhs Entire GST including CGST, IGST to be monitored by State No involvement of Central Government Above Rs. 100 lakhs Units will be under dual authorities CGST and IGST will be monitored by Central Govt. and SGST to be monitored by State Govt.

10 GST : Summary of Business Impact GST : Snap shot of Impacted Business Areas GST Procurement / Sourcing Sales & Marketing Distribution Logistics Product Pricing Profitability Working Capital Accounting Human Resource Current and Future Investments

11 GST : Summary of Business Impact GST : Snap shot of Impacted Business Areas Sr.No. Business Area Impact 1 Procurement Higher Tax Rate, But - Lower Cost of Tax Saving of CST, But incidence of 1% Additional Tax Credit of all Taxes paid on procurement Goods + Services Increase in Working Capital requirements 2 Distribution / Logistics Rationalization of Tax Rate Multiple to Single / Two rates Saving of CST, But incidence of 1% Additional Tax Sales from factory / through RSO will be at par Logistics function will need relook Working Capital need of Channel Partners will increase. After Sales Services Increase in Tax Rates 3 Manufacturing Area based exemption from excise duty is not likely to continue under GST. Need to get converted into Refund schemes Hard Negotiations with Government required. Inter unit transfers to cost 1% additional non-vatable tax 4 Finance (Profitability,Working Capital, Tax compliance, accounting, investment decisions) Product Cost / Pricing will go under change Future Products / Investment decisions needs to be revisited. Working Capital requirement will increase Change in Accounting and reporting Indirect Tax compliance. 5 Information Technology ERP System will need revamp / re-implementation.

12 Invoicing under GST 12

13 Impact on Supply Chain Manufacture & Sale / Export 13

14 GST Registration Salient Features Open Points Separate registration for each State 15-digit (alpha-numeric) PAN-based GSTIN Fully online registration process with no physical documentation / inspection of business premises involved Flexibility to use existing registration data in one State as template for further registrations Option to authorize representative during Registration Amendments of non-core fields of registration data on self-service basis Migration of existing dealers Dual Jurisdiction mechanism Single vs Multiple registration within a State No clarity on how Input Service Distribution (ISD) mechanism will work Extent of State specific fields in the Registration Form

15 GST Return Salient Features Monthly return filing for all Regular taxpayers Self-assessment of tax liability (for one tax period only) Common e-return for CGST, SGST, IGST and Additional Tax (for each registration) Upload of B2B supply invoice information is must before filing of return; Procurement list (B2B) to be generated automatically by GSTN Annual Return to include reconciliation statement with the audited financial statements of the taxpayers Open Points Place of Supply rules and its implications on Return filing Destination State wise aggregation of B2C inter-state supply details Capturing and processing of information pertaining to noneligibility / partial eligibility of credit (including capital goods) Mechanism for auto reversal of credit; revision of submitted invoice information and its impact on counter-party

16 GST Payments Salient Features Open Points Common challan for CGST, SGST, IGST and Additional Tax Filling up of electronic challan is must for payment (irrespective of payment method) Both Online (including Credit Card, Debit Card) and offline modes of payment will be available Offline payment modes have certain restrictions in terms total amount that can be paid Payment can be made anytime Date of realization vs date of deposit as date of payment Whether tax payment to be linked to tax period or a personalized ledger will be maintained Dispute resolution

17 Illustrative Return filing steps Upload of B2B supply invoice level details Auto-drafting of counter-party purchase register based on such uploaded supply invoice details Acceptance of auto-drafted purchase register by counter-party dealer Generation of draft return Payment of due tax Submission of Return

18 GST : Government Departments involved in implementation Framework and key decisions Empowered Committee State Finance Ministry / VAT Departments State level levies and procedures GST implementation GST Council Key Stakeholders State Industries Department State incentives Central incentives Ministry of Commerce CBEC Central levies and procedures

19 GST : Progress and Roadmap from Government side Consensus between Centre & State on power sharing State fears on loss of revenue & compensation framework Agreement on the Constitutional Amendment Bill (CAB) Agreement on Taxing framework, more specifically Place of Supply Rules Passing of the CAB Formation of GST Council and Issue of draft regulations & GSTN framework Industry feedback & finalization of Act & Rules Roll -out

20 POWERS OF GST COUNCIL Taxes to be subsumed. Rate Structure Exemptions Threshold limits Model GST Law Principles of levy Apportionment of IGST Place of supply Special schemes for NE & Developing States Dispute Resolution Mechanism.

21 Open Issues Fiscal Autonomy Vs Harmonization Tax Rates Tax Base Taxes to be subsumed Compensation to States Consensus in GST Council Dispute Resolution

22 Opportunities and challenges for CMA Opportunities Expansion of scope increase in number of assesse Equal opportunity evolving tax law Supporting business for cost effective business model Participation in development of Systems, process and controls Tax Credit reconciliations Challenges Enhancement of Skills Subject Knowledge / Presentation Gain visibility in organization - demonstrate passion / ownership of issue Build Reputation in Government - to get statutory recognition

23 THANK YOU 23