Overview of Goods and Services Tax. Prashant Deshpande 31st July 2015 WIRC

Transcription

1 Overview of Goods and Services Tax Prashant Deshpande 31st July 2015 WIRC 1

2 Contents Setting the Context Potential Implications Key Considerations Proactive Approach to GST Questions 2015 Deloitte Touché Tohmatsu India Private Limited 2

3 Setting the Context 2015 Deloitte Touché Tohmatsu India Private Limited 3

4 Goods and Services Tax What is GST? Comprehensive value added tax on goods & services Expected to be introduced from April 2016 One taxable event against multiple events at present Expected to widen tax base and lower the effective tax rate on goods Make India a common market Why GST? Indian indirect tax structure involving multiple taxes is out of sync with global practices Multiple taxes lead to double taxation and cascading effect High cost of tax compliance and double taxation leads to higher prices of goods & service High cost of tax collection leads to lower tax yield to Government 2015 Deloitte Touche Tohmatsu India Private Limited 4

5 Taxes to be subsumed in GST CGST VAT State cesses & surcharges on goods & services SGST Taxes on lottery, betting, gambling Entry Tax & Octroi Central Sales Tax Purchase Tax & Luxury Tax Entertainment Tax (except by local bodies) Note: 1) Alcoholic beverages for human consumption are proposed to be kept out of the purview of GST 2) GST on petroleum products would be levied from a notified date recommended by the GST Council 3) * Includes Excise duty levied under Medicinal & Toilet Preparations (Excise Duties) Act, Deloitte Touché Tohmatsu India Private Limited 5

6 GST Dimensions of the proposed GST Dual GST: Central GST (CGST) and State GST (SGST) to operate concurrently on supply of goods and services Inter-State transactions subject to Integrated GST (IGST) which will be aggregate of CGST and SGST Taxable event of supply as against manufacture (excise), sales (VAT) and service (service tax) What are the dimensions of significance? Existing industrial incentives to be continued by way of refund mechanism Cross utilization of CGST and SGST credit will not be permitted except under IGST Levy of additional tax of 1% on inter-state movement of goods. However, the report of Rajya Sabha Committee has recommended that the same should not be levied on supplies which are undertaken without a consideration Exports and supplies to SEZ to be zero-rated Imports would be subjected to IGST on destination principle; SGST component of IGST to be appropriated by State where supplies get consumed Intra-State CGST CGST SGST IGST Inter-State SGST IGST (CGST+SGST) Input CGST against CGST IGST Input SGST against - SGST IGST Input IGST against IGST CGST SGST 2015 Deloitte Touché Tohmatsu India Private Limited * Threshold (for SGST and CGST) is yet to be agreed between Centre and States. Centre recommends a higher threshold of INR 2.5 mn. 6

7 Tax and Finance The shift in focus from manufacture/ sale/service to supply in a GST environment impacts all functions in the value chain Assess current business processes and IT systems to identify impact areas including on master data remap (plants, CFA s, distributors etc.) and transaction records Identify system design changes for compliance 2 Evaluate optimization of manufacturing / warehouses/ Distributors, aligned with the business plan to optimise logistics / inventory / service levels Review linkages from plant to warehouses to distributors aligned to demand and service levels Analyze Inventory holding patterns aligned to service levels Strategic planning for current / new capacities aligned to the centre of gravity of demand clusters Review S&OP Supply chain 1 Sales & Marketing GST 8 Information System Review impact on channel economics (distributor size, ROI, market alignment, DSR s, credit, WC etc.) and subsequent impact on spends (promotion, PoS etc.) Review requirement to reorient sales force in line with value chain re-alignment Evaluate impact on current pipeline and inventory Evaluate make Vs. buy (including imports) Preferential GST Vendors to maximize ITC Focus on landed cost 3 7 Legal Suppliers Review contracts (vendors, suppliers) and evaluate impact of continuation / termination both current and upcoming Review pricing model and pricing strategies Assess impact on structure of offers/financing Human Capital 4 Customers GST 6 Build knowledge of all internal stakeholders on new systems and processes through training Evaluate consolidation opportunities Plan the redeployment in the value chain in line with the footprint changes Plan channel communication Assess indirect tax trigger points, credits, current exemption / concessions and compliance. Identify critical areas for clarification from authorities Review of all key documentation to identify impact incidences 5 Evaluate impact on cash flows and tax liability Review and list norms and changes in accounting policies Understand gaps if any in billing practices that could impact maximization of tax credits 2015 Deloitte Touche Tohmatsu India Private Limited 7

8 Potential Implications 8

9 Potential Implications Reduces the tax credit loss on inter-state purchases Particulars Manufactured Goods Present GST Non-creditable CST Creditable GST Plant A Input % % + 1% Addl. Tax Eligible credit % Input Vendors Non-creditable CST Creditable GST Plant B Eligible credit Nil - Effective cost Notes: 1. Value of input is assumed at Rs GST is 20% Non-creditable CST Creditable GST Plant C Legends: Text in dark green: Existing i.e. pre-gst Text in gray: Proposed i.e. GST Legend for movement of goods Intra-state purchase 2015 Deloitte Touché Tohmatsu India Private Limited 9

10 Potential Implications Eliminates the tax credit loss on intra-state purchases (on inter-state stock transfer) Particulars Manufactured Goods Present GST Local Vendors Partial loss of VAT credit Partial loss of VAT credit Creditable GST Creditable GST Plant A Plant B Input % % Eligible credit % Eligible credit Effective cost Partial loss of VAT credit Creditable GST Plant C Notes: 1. Value of input is assumed at Rs GST is 20% 3. Stock transfer is assumed to be 100% of the inventory 4. Assuming input tax credit to the extent of 4% is to be reversed in case the manufactured goods are stock transferred outside the state Legends: Text in dark green: Existing i.e. pre-gst Text in gray: Proposed i.e. GST Legend for movement of goods Intra-state purchase 2015 Deloitte Touché Tohmatsu India Private Limited 10

11 Potential Implications Trading business to benefit Customs duty (except basic custom duty) Service tax on services procured Non-creditable CVD Creditable GST Imports (Traded Products) Particulars Import of goods Present GST Value of Import (A) % on (A) = (B) % on (A+B) = (C) Edu. 3% on (B+C) = (D) 7 * 4% on (A+B+C+D) = (E) % +1% Additional Tax Eligible credit / refund Effective Cost Stocking Point Non-creditable Service tax Creditable GST Particulars Vendors (services) Import of services Present GST Value of Services Service 14% % Eligible credit Nil -200 Effective Cost Notes (for both the tables): 1. Value of import and services is assumed at Rs GST is 20% 3. SAD is considered as refundable on the traded products on the basis of customs notification 102/2007 dated September 14, 2007 *Cess on BCD in GST not considered in above table Legends: Text in dark green: Existing i.e. pre-gst Text in gray: Proposed i.e. GST 2015 Deloitte Touché Tohmatsu India Private Limited 11

12 Potential Implications Change in working capital requirement of manufacturers Stock transfer to be subjected to GST as against no VAT at present Plant A GST No VAT / CST Plant B No VAT / CST GST No VAT / CST GST Stocking Point Particulars No VAT / CST GST Branch Manufactured Goods Present GST Plant C Output Transferred to Stocking Point % on Mfg % CST / VAT on Transfer - - Legends: Text in dark green: Existing i.e. pre-gst Text in gray: Proposed i.e. GST Stock transfer value Increase in working capital req 75 Notes: 2015 Deloitte Touché Tohmatsu India Private Limited 1. Value of output is assumed at Rs GST is 20%

13 Potential Implications Change in working capital requirement of service providers Higher service tax rate of 20% as compared to existing 14% Vendor Service 14% Service 14% 20% 20% Service Only Entity Customer Centralized Registration???? Notes : 1. GST is 20% Legends: Text in dark green: Existing i.e. pre-gst Text in gray: Proposed i.e. GST 2015 Deloitte Touché Tohmatsu India Private Limited 13

14 Key considerations 2015 Deloitte Touché Tohmatsu India Private Limited 14

15 Key business considerations that enable optimization of the value chain and enable our clients to take advantage in the marketplace 1 Service delivery and portfolio 4 Alignment of value chain partners Customer/channel types and response time Reponses time to serve demand clusters Delivery requirements and constraints Alignment of vendors compliance and documentation What to own in the value chain impact of additional taxes 2 Growth and coverage Growth regions to be addressed Strategic presence in specific markets Sustaining/improving current volumes 3 Cost considerations Warehousing and rental costs Supply planning maximizing the GST impact Impact on replacement, returns and disposal Ports of entry / exit imports and exports 5 Other dimensions Region / area based incentives Transportation costs / trucking efficiencies Inventory holding costs Potential addition to manufacturing / secondary value add 2015 Deloitte Touché Tohmatsu India Private Limited 15

16 Process and System Impact Considerations for Process and System changes Determine Tax applicability Taxable events Compute and book taxes Tax payments and returns Compliance and reporting Material Plant Service Define rules for tax applicability - Tag master data - Maintain/ allocate tax masters - Purchase/ Sales Order - Service order - Goods movements - Credits/ debits - Maintain process logic for booking sequence and tax computation - Book tax as financial record - Summarise tax computation per tax authority/ category - Determine tax payments/ returns - Ensure compliance to data records/ audit trail requirements - Generate compliance and monitoring reports From Source, Nature of transaction As applicable From Multiple, Complex Multi layer, Multi dimensional Manual, prone to interpretation To Target of goods supply/ receipt Legends: Existing i.e. pre-gst All Events Proposed i.e. GST Standard, simplified Central/ State tax, setoff across service and materials tax Automate, E filling 2015 Deloitte Touché Tohmatsu India Private Limited 10

17 Proactive Approach to GST 17

18 Why get started early? So much to do, yet so little time with clients Set-up project team Customers/ vendors contract renegotiation Mapping of supply chain with VAT/GST model Analysis of VAT/GST implications on business Negotiation/lobbying with authorities Change management The Clock is ticking Advantages of starting NOW Early bird catches the worm Companies that prepared early came off best Minimize unnecessary rush Lack of preparation caught many businesses out The earlier we engage our clients on GST, the better for us and the clients To-Dos for us Develop strong GST technical skills Acquire detailed business knowledge, including on supply chain Develop project management capabilities Consistent collobaration among CA fraternity having requisite skills The clock is ticking, for us as well Wide-spread impact on every business aspect All business aspects affected Sales and marketing strategies Suppliers Customers Finance & administration Human capital Information System Accountability Business efficiency 2015 Deloitte Touche Tohmatsu India Private Limited 18

19 Proactive approach to GST A win-win situation for us and the clients Readiness assessment Overview assessment of different business functions and operations in order to be better prepared for transition Impact analysis Identifying potential impact including quantification of impact, identifying affected business functions. Assess for potential changes in the supply chain structure Fine tuning of operations Validation & fine-tuning the business process and functions (i.e. finance, commercial, IT, accounting etc.) Implementation support (and post implementation) Transition to new regime to the impacted functions (i.e. finance, commercial, IT, accounting etc.) 2015 Deloitte Touché Tohmatsu India Private Limited 19

20 Key areas to focus for seamless transition System readiness to adapt GST regime. Transfer of unclaimed indirect tax credit balances Data Migration and System Fall Back mechanism Taxability of goods sold prior to GST implementation date and returned thereafter Applicability of Place of Supply Rules Point of Taxation for rendition of services / goods Master data and transaction mapping Changes to tax-relevant system design viz. Tax G/L mapping to transaction events Additional tax on interstate supplies Implications of bandwidth of GST rates given to states 2015 Deloitte Touché Tohmatsu India Private Limited 20

21 Deloitte in the forefront Pan India GST events held in 3 cities: Mumbai, Delhi and Bangalore Sharing their vast international experience Deloitte global leaders during their India visit Special CFO focused roundtable in Delhi on GST organized jointly with Economic Times Associating as Knowledge Associate for GST events organized by Apex Chambers GST awareness presentations before various forum and trade associations Contributing though pieces in various media on GST related matters and issues Launch of GST mobile application Deloitte India GST Connect 2015 Deloitte Touche Tohmatsu India Private Limited 21

22 Questions 2015 Deloitte Touche Tohmatsu India Private Limited 22

23 Thank You Prashant Deshpande Leader Indirect Tax Telephone : pradeshpande@deloitte.com 2015 Deloitte Touche Tohmatsu India Private Limited 23

24 Glossary GST Goods and Service Tax CGST Central Goods and Service Tax CST Central Sales Tax CVD Countervailing Duty SGST State Goods and Services Tax IGST - Integrated Goods and Services Tax ITC - Input Tax Credit SAD Special Additional Duty 2015 Deloitte Touché Tohmatsu India Private Limited 24

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26 WESTERN INDIA REGIONAL COUNCIL INDIRECT TAX STUDY GROUP MEMBER ENROLMENT FORM Name ICAI Membership No. Correspondence Address : CA : : Tel. No. Mobile: Office: Residence : Occupation PRACTICE INDUSTRY Company/Firm name and Designation Cheque/Demand Draft No. drawn in favour of WIRC OF ICAI for Rs. 1000/- towards membership for the year is enclosed. Areas of Interest in Indirect Tax - Would you like to be a Speaker Contribute on Research Projects Signature : Date: