GST - The Game. Changer. 17 January KPMG.com/in

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1 GST - The Game Changer 17 January 2017 KPMG.com/in 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 1

2 Progress so far and road ahead 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 2

3 Progress so far and road ahead Constitution Amendment Bill GST Law GSTN infrastructure Lok Sabha 6 May 2015 Rajya Sabha 3 August 2016 Draft Rules on invoice, return, registration etc. Sept 2016 Revised Model law November 2016 Process documents October 2015 *Sources: information as available on public domain Lok Sabha 8 August 2016 Public consultation on model law/ industry issues, advocacy, rate Ongoing Software for registration, Hardware return filing & payment supply States approval September 2016 States back end processes: - GSTN engaged by 17 States/ UT - 14 States/ UT doing in-house Presidential Assent Various meetings of 8 September 2016 GST council till date Finalization of law by GST council President constitutes GST council on 15 Sep 2016 GST Bill to be presented in Parliament (~ Feb 2017) Live testing likely by Jan 2017 G O L I V E 1 July 2017 Completed Pending In progress Current status 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 3

4 GST Council - Distribution of Powers Weightage of votes of State Governments and Central Government in GST Council 2/3 weightage given to State Governments collectively 1/3 weightage to Central Government 75 percent majority of weighted votes required Rates Exemptions Scope and Nature of supply Threshold limits Apportionment of Taxes Principles for levy and place of supply Subsumation of taxes 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 4

5 GST Council session Key developments GST Council (a body of Centre & State Governments) constituted on 15 September 2016, responsible for finalizing law and taking key decisions like, threshold, tax rate, exemptions etc. Threshold limit for paying tax under the GST regime fixed as follows: INR 20 lacs for all States except for the North-Eastern and other small States INR 10 Lacs for the North-Eastern and other small States 5 sets of draft GST Rules governing registrations, invoices, payments, returns, refunds released Principally approved by the GST Council For goods, GST rates finalized as follows: Exemptions on goods of mass consumption such as food grains, milk etc. 5% - Lower rates for essential items (i.e. goods which are exempt from Excise duty and attract such as edible oil, spices, tea, coffee, etc.) 12% - Standard rate for goods with current tax incidence between 9% to 15% such as computers, processed food, etc. 18% - Standard rate for goods with current tax incidence between 15% to 21% such as soaps, oils, shaving sticks, etc KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 5

6 GST Council session Key developments (Contd.) 28% - Peak rate for luxury goods (SUVs), sin goods (aerated drinks, tobacco) and goods with current tax incidence around 30-31% (white goods like LCDs, ACs); additional cess also proposed on luxury and sin goods Special rate for gold possible yet to be finalized List of goods for each rate not released yet For services, rates yet to be finalized possibility of standard rate of 18%; for services enjoying partial abatement as on date, possibility of concessional GST rate of 12% 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 6

7 Expected timelines for GST roll out from 1 July 2017 FM Arun Jaitley met state FM s for political decision on administrative control November 20, 2016 CGST and SGST law approved by GST council December 22/ 23, 2016 Eighth GST council meeting had discussions on dual control of Centre and States, IGST law, Cess on 4 items, taxation of high seas, compensation shortfall and sector specific tax concessions January 03/ 04, 2016 FM Arun Jaitley held pre-budget consultation with state finance ministers after GST Council meet January 04, 2016 Ninth GST council meeting concluded yesterday. Contentious issue of dual control finally resolved and changed GST laws to be discussed in next meeting on 18 February January 16, 2016 Target date for roll out of GST July 01, KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 7

8 Model GST Law- Key changes Scope of term Supply Not limited to sale, manufacture & services includes stock transfers and free supplies to related persons Time of supply of goods Earliest of date of invoice or payment Place of supply Critical to determine local GST or IGST applicable Input Tax Credit Liberal provisions, linked to payment by supplier, personal consumption not permitted Transition provisions credit of taxes/ duties paid on inputs held in stock to be allowed Discounts - If known at the time of agreement and can be linked to invoice Anti-profiteering provision introduced 8

9 Matching Mechanism Seller to upload output details for the month of April in GSTR-1* GSTR-2A of Buyer to get auto-populated on the basis of corresponding output details of Vendor Buyer to upload input details in GSTR-2^ Buyer to file its monthly return in GSTR-3# after making payment of his net output liability Where no rectification is made by either party, the differential credit so availed to be added to output liability of Buyer in his GSTR-3 for the month of June Seller/ Buyer to make suitable rectifications in output/ input details by 10 th / 15 th of June Discrepancies (if any) to be communicated to Seller and Buyer before 30 th May Reconciliation between GSTR-2A and 2 to be carried out between 20 th and 30 th May *to be filed by 10 th May 2017 ^ to be filed by 15 th May 2017 # to be filed by 20 th May

10 Key Impact Areas Procurements from Tier 1 Tooling arrangements AMC and civil contracts Supply from/ Procurement from Excise Exempt Zones VAT linked refund/ soft loans Savings, working capital, dealer margin, anti-profiteering, Revised MRP - Pricing 10

11 Key Impact Areas (Contd..) Warranty arrangements Promotional schemes Employee benefit schemes Extended warranty and commissions Place of Supply Processes Communication with suppliers and dealers on matching 11

12 With GST, Organizations have an opportunity to re-jig their supply chains, to make them more Efficient and Effective Supply chain costs consist of Fiscal costs (central and state taxes) and physical supply chain costs (transportation, warehousing costs, inventory, etc.). However, traditionally the fiscal costs have predominantly determined the supply chain configuration of companies in India Hence, organizations in India tend to have a supply chain structure that is more distributed and fragmented - warehouse in each state, local suppliers in each state, multiple but smaller facilities However, this is expected to change under GST as locations will become tax neutral. Hence, under GST, only supply chain costs will determine companies supply chain configuration. Existing supply chains may no longer be optimal 12

13 As Organizations are gearing for GST, Supply Chain needs to find answers to multiple questions Is my supply chain still relevant from the perspectives of landed costs & service levels? Are there any cost savings that I can derive by re-configuring my supply chains, renegotiating with suppliers? Is my Manufacturing Architecture still relevant number of plants, product plant allocation, job work, etc.? What are those areas of opportunities? Which of these are quick wins vs big gains but long term? 13

14 Supply Chain : Should be driven more by commercial imperatives Redesign distribution strategy such as: Realignment of depots Price negotiation with dealers Revisit procurement strategy such as: Sourcing mix viz. Local/ inter-state/ imports, high seas sale etc Centralized/ decentralized sourcing Vendor base expansion Price negotiations with vendors Revisit manufacturing arrangement such as: Centralised manufacturing with multiple dealers/ depots Rethink strategic decisions such as: Less than 4 metre car Make or import 14

15 Supply Chain : Should be driven more by commercial imperatives (contd ) Tier 3 Tier 2 Tier 1 Vendor I Vendor II Vendor III Vendor A Vendor B Vendor C Vendor 1 W/H Sales OE 85% L-M Dealers Vendor D Vendor 2 Stock transfer Sales Sales Vendor 3 OEM Vendor 4 Stock transfer W/H Sales Distributors / Retailers Suppliers OES 70% H. 15% H Contribution to firm s top line XX YY Impact of GST 15

16 Impact on IT systems Maintenance of records such as CGST SGST/ IGST registers as per GST provisions Provision for interface with GST Network for reconciliation and filing of GST Returns Reports/ Registers GSTN Interface Business Processes Changes to business processes as deemed necessary for GST implementation GST Note Implement Implementation of IT systems for changes to pricing and tax related configurations Realignment of open transactions, inventory and credit balances as per GST provisions Transactio n Data Master Data Update Chart of Accounts, Customer/ Vendor/ Material masters and Pricing/Tax condition records 16

17 GST Return Filing Process 17

18 To summarize.. GST appears to be a reality in 2017 Assess the overall impact of GST on various business functions Opportunity assessment across supply chain Significant impact on IT system Business continuity issue Prepare for transition by drawing up an implementation plan Set up PMO to coordinate/ monitor progress Once final GST legislation is available, fine tune and operationalize the implementation plan Managing trade and industry benchmarking 2016 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 18

19 Thank you Follow us on: kpmg.com/in/socialmedia Presenter: Priyajit Ghosh, Partner The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG The KPMG name and logo are registered trademarks or trademarks of KPMG International KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 19