Goods & Service Tax (GST) Impact on Dairy Industry. Discussion Draft. By Bharat Kedia

Transcription

1 Goods & Service Tax (GST) Impact on Dairy Industry Discussion Draft By Bharat Kedia 1

2 Agenda Present Indirect Tax structure Changes due to GST GST Framework Key impact summary Next steps 2

3 Present Indirect Tax Structure Central Taxes Parameters Rates Custom Duty Additional Duty of Customs Special Additional Duty Central Excise Service Tax Krishi Kalyan Cess (KKC) Swachh Bharat Cess (SBC) CST State / Local Taxes VAT Import / Export of Goods Import of goods levied in lieu of excise duty Import of goods levied in lieu of VAT Manufacturing of goods Provision of Services Provision of Services Provision of Services Inter-state sale of goods Parameters Sale of goods within a state 10% 12.5% 4% 12.5% 14% 0.5% 0.5% 2% Rate 5/15% Entry Tax / Octroi Movement of goods into local territories xx% Cost Pass Through 3

4 Challenges of Present Structure in India Cascading Impact Burden of tax on tax Non - availability of VAT Credit against CENVAT liability and vice versa Non - availability of CST Credit against VAT liability Multiplicity of taxes at the Centre and State levels Multiplicity of Tax Rates Input CENVAT (Service Tax & Excise Duty) Input CENVAT (Service Tax & Excise Duty) Input VAT Input VAT Input CST Always a Cost Input CST Always a Cost Credit set off possible No set off possible 4

5 Why GST is required Cascading effect Varied concessions & exemptions Lack of transparency Multiple points of taxation Lack of Uniformity Goods vs. Service dilemma 5

6 Key points to note in GST From origin based tax to destination based tax Apply to all stages of the value chain primary, secondary & tertiary including retail Taxable supply of supply as against manufacture, sales & services. Dual GST Centre GST & State GST to operate concurrently on supply of goods & services CGST & SGST on intra state supplies of goods & services in India IGST (broadly CGST+SGST) on inter state supplies of goods & services in India. Exports zero rated. 6

7 GST Council 7

8 Taxes to be subsumed Central Levies State Levies ED CST Cesses ST Entertain ment Tax Luxury Tax Entry Tax & Octroi VAT Electricity Duty C-GST S-GST I-GST 8

9 Taxes to Remain Basic Custom Duty Taxes on liquors & petroleum products Stamp duty Excise duty on tobacco products Toll taxes Property Tax Export duty Environment Tax Tax on electricity 9

10 Proposed GST structure Plant to Distributor Plant to Depot to Distributor Plant to Export CGST SGST CGST SGST NIL Maharashtra Maharashtra Maharashtra Maharashtra Maharashtra Abroad Plant to Distributor Plant to Depot to Distributor Import to Plant IGST IGST CGST & SGST IGST Gujarat Maharashtra Gujarat Maharashtra Gujarat Abroad Maharashtra 10

11 Utilization of Input Credits CGST SGST IGST CGST SGST IGST IGST IGST CGST SGST 11

12 GST Law Input Tax Credit Conditions Possession of a tax invoice, or other tax-paying document issued by a supplier Goods / services have been received or deemed to be received by the registered taxable person Tax charged in respect of said supplies has been actually paid to the credit of the appropriate Government Return has been furnished by the registered taxable person Restrictions Goods or services used partly for business and partly for non-taxable / exempted / other purposes Motor vehicles Goods / services used for personal consumption Works contract resulting in immovable property (other than plant and machinery) Goods / services suffering composition levy Credit for goods against an invoice, which are received in lots or instalments can be taken only upon receipt of the last lot or instalment 12

13 Key Impact areas There is a need to look at impact areas from a twin perspective of transactions and business model 13

14 Impact of GST on Industry Cash Transactions IT Applications 14

15 Impact of GST on Working Capital # Particulars Current Post GST Impact 1 Transfer of Goods from Plant Location to Depot Location Monthly F Form Payment of GST & Input at the time of Final Sale Increase in Working Capital of Company 2 Movement of Goods from Depots to Super Stockiest Monthly F Form Payment of GST & Input at the time of Final Sale Increase in Working Capital of SS Note : 1. GST Registration at Depot is crucial to claim Input GST 2. Agreement with Super Stockiest need to be reviewed to understand who bares the cost of working capital enhancement 15

16 Impact of GST on Operational Efficiency # Particulars Current Post GST Impact 1 Movement of Goods via state borders & city borders Long queues at octroi naka and a loss of productive time at state borders Seamless movement Time & cost saving in transportation 2 Management of MRP by states Due to different VAT rates either MRPs are different for different states or company takes the burden in realization Uniform MRPs & Realizations Better Revenue management Notes : 1. Proper review of revenue and its impact due to MRP rationalisation 2. Easy movement of Goods across the border and cannibalization between Distributors 16

17 Impact of GST on Compliance # Particulars Current Post GST Impact 1 State specific Registration VAT registrations are state specific GST registrations are also likely to be state specific Perhaps None 2 State specific accounting Purchases segregated based on inputable & non inputable Purchases segregated based on inter-state or intra-state High 3 Maintenance of stock transfer records Monthly F- Form based on stock transfer records Stock transfer record gains more importance for claiming input GST High 4 Way bills & Lorry receipts Way bills / Lorry receipts as a proof for VAT vs CST Way bills / Lorry receipts may decline its importance Low Notes : Maintenance of manual records can be very difficult going forward 17

18 GST Returns Different types of Returns are prescribed as tabulated below Return required to be filed for each registration; A separate recon statement (CA certified) to be filed before Dec 31 next year by Income Tax Audit Dealers * (other than compounding taxpayer and ISD) 18

19 GST Returns Different types of Returns are prescribed as tabulated below 19

20 Impact of GST on IT Applications # Particulars Current Post GST Impact 1 IT system to distinguish purchases based on states Purchases are recorded with or without taxes depending on input credit Purchases will be required to record based on states Significant change 2 IT application to record stock transfers appropriately Stock transfer records are generally not part of many MIS Stock transfers are practically sales Significant impact 3 Internal validation of sale & purchase and reconciliation Purchase & Sale reconciliation is through inventory movement Input Output norms need to be redefined, to reconcile Purchase vs Sales Significant Impact 4 Upload of data to government sites Reports generated for management review Reports required to be generated which can be uploaded in Government format Medium Impact 20

21 Impact on IT Systems GST is likely to impact several aspects of IT systems Changes in the systems are likely to be required primarily on the following: Change in Taxes / Tax rates Availability of credits for input taxes on purchases including inter-state purchases and import GST, and also the order / sequence of set-off Availability of cross credits for goods and services GST on Stock-transfers Broadly, the changes required in IT system on account of GST can be categorized into the following: Need for addition/modification/omission of certain data fields Changes in the in-built logic for computation of some data fields 21

22 Impact of GST on Cash Transactions # Particulars Current Post GST Impact 1 Purchase / Sale transactions link From manufacturing facility to final sale to consumer has broken links From manufacturing facility to final sale to consumer is linked end-to-end Cash transactions are likely to get exposed 2 Service & Goods Transactions link Transaction of Service and transaction of Goods are independent Value addition in Goods through services is linked Partial cash & partial Bank will become prohibitive 3 Job Work captured Lot part of Job works go unaccounted Job works will be part of the transaction linked Off-Books job work may not be sustainable 22

23 Impact of GST on Accounting # 1 2 Particulars Current Post GST Impact Centralization of Accounting / documentation MIS & Reporting Assessment of VAT is localized right now which drives decentralized accounting Accounting systems are designed to meet current needs Assessments are likely to happen centralized which will allow centralization of accounting function Accounting systems would require to be redesign to generate new set of MIS / Reports Efficient process Change in accounting system 3 Compliance Audit Internal Audit at transactional level are simplified Internal Audit / Compliance Audit will require more stringent checks Change in Audit engagement 23

24 Marketing likely Impact 24

25 Valuation Inclusions Reimbursement All reimbursement shall be include Discount before time of supply Allowed only if it is in the course of normal trade practice And has been duly recorded in the invoice Discount after time of supply Allowed only if such post-supply discount is established as per the agreement and is known at or before the time of supply Specifically linked to relevant invoice GST Valuation Rules, 2016 Transaction Value Value by Comparison Computed Value Method Residual Method Rejection of declared value 25

26 GST Law Changes time of Tax payment Date of removal Date of Invoice Receipt of payment WHICHEVER OCCURS FIRST Date of receipt by recipient 26

27 One GST Many Taxes Location of Supplier 1. Both in same State Intra (pay SGST & CGGST) 2. Different State Intra (pay IGST) Place of Supply 27

28 Transitional Aspects Foregoing optional exemptions under excise/vat Purchases from manufacturers for higher credits Capturing of service tax inbuilt in stock Option to forego exemption immediately prior to transition to be evaluated so that credit of stocks lying on transition could be carried forward Purchases should be made based on excise documents so that the credit lying on transition date could be claimed. Service Tax component could be planned to carry forward equivalent to portion in stock. Inventory/Production/ Distribution Planning Vendor analysis Credit on capital goodsrepresentation Stock of input/capital goods lying with agents Procurement patterns of customers could see a change during transition period. This needs to be forecasted depending upon the tax incidence current vs GST, the nature of products and B2B/B2C sale. Procurement cost in case of many products is likely to come down. Impact need to be analysed for price negotiation. Representation to be made to government to allow credit on capital goods. Opting 6% ED to be evaluated to claim credit on CG purchased recently. Credit on stock/capital goods lying with agents to be declared, captured and availed. 28

29 Issues & Challenges Under GST Companies having multiple locations will have multiple registrations and returns. Hitherto Input Tax credit was available on the basis of invoice. However, under GST it will be allowed only if the vendor pays taxes to the government and if the details uploaded on the government s IT server matches with the details uploaded by the vendors. Credit availed in current regime will be allowed to the extent reflected in the return effective transitional planning required. Effective planning will be required for structuring contract and for vendor negotiations. Changes in IT system will be required due to change in legislation e.g. separate codes will be required for capturing SGST, CGST & IGST applicable for each state. Negotiation of State Incentives remaining to be claimed extension of eligibility period / inclusion of Service portion of SGST 29

30 GST Changes provide Challenges & opportunities How to be Future ready? Opportunities for Employment Opportunities for Practicing CA Ethical Practices - International Trends 30

31 Emerging opportunities in Employment/ Practice Professionals can provide services in 4 main baskets 1. Creator of Value - Strategic Advisory Services, Policy making 2. Enabler of Value - Supporting Management in decision making, analyzing and evaluating performance. 3. Preserver of Value - Mitigating risk, implementing internal controls and MIS 4. Reporter of Value - Ensuring relevant and useful internal and external reporting 31

32 Value Creation through - Employment Corporate Governance + Strategic management GST, Customs & FTP - compliance + benefits Management advisory - Operation + Finance Agreement / contracts vetting / drafting Past also Risk management Old law + Exposure under GST. Audit modification 32

33 New roles for Employees / Advisors Business restructuring internal + amalgamations. Compliance under ST, CE, VAT & CST for and in future - GST Knowledge management - continuation Internal and system controls GST needed change SOP amendment needed IT and IT support services GST compliant + synergy with accounting and finance Fraud detecting / preventing division New exposures Supply Chain Relook to ensure tax optimisation 33

34 New Areas for CA s in Practice Pre GST 6-9 months Awareness of GST for clients purchase, sales, operations, finance specific training Impact Study now; after Act + Rules Long Term Contract Review Agreements overflowing into GST Representation for amendment New Reports for decision making ERP implementation Supply change management Disaster prevention, minimization + recovery Dealing and feasibility study for Merger & Acquisitions Post Implementation Specialization in refunds, subsidies, drawbacks, duty scrips, other FTP benefits. 34

35 New Areas for CA s in Practice Fraud investigating services Compliance audit wrt economic, commercial and labour laws. International taxation services especially for Indian based MNCs. Business agreement / contracts drafting tax planning A2Z services under single roof for a corporate. Taxation + Accounting +advisory E-commerce & aggregators GST Transitions + Compliance Banking and Insurance Advisory / assisting to improve / create a/cting or office management software company DT/IDT reviews non mandatory / statutory compliance + Value addition Many more 35

36 Future Possibilities? Government Accounting/ Partner at Financial Reforms Simplification of Taxation IFRS, XBRL, Controls and Systems Verification Branding self and organization Global Service Provider/ IT & ITES Specialisation; Management consultancy due diligence, debt syndication, IPO related, Valuation, Risk profiling, KPO Invest in: infrastructure/ technology; human resource; consolidation to bigger; interface with other prof.; add new competencies; geographical reach [GST]. 36

37 Am I ready? Where I stand in terms of subject knowledge - in respective field whether updated - frequency What is the uniqueness I have that could distinguish me from others? expertise / ambition / in depth knowledge in not so common areas Am I keen to learn new things from experience / mistakes (own / others) / reading / networking- being social. I may get many new ideas but whether I put sufficient effort to make it happen? feasibility study + Research + marketing analysis etc competing Edge Do I Have goals specific 1 year/ 5 years / 10 years plan + resources + path Self-monitoring am I better than yesterday? Mile stone analysis where am I supposed to stand Vs Where am I actually standing? Benchmarking Role models Road map to reach / overtake the best. Life style punctuality small aspects make big difference system / way of life 37

38 Dairy Sector: Tax Rates Indicative products Excise VAT Total Tax Likely under GST* Impact Milk Nil Nil Nil Nil/12% Ghee, Paneer etc. Nil 5.5% 5.5% 12%/20% Cheese, butter etc Nil 12.5% 12.5% 20% Some other sweets/ products/drinks * Expected rate 38 2%/6% 2%/6% Opportunities/benefits 5.5% 12.5% Removal of exemptions- higher availability of credits Reduced variations in rates of tax across statesdiscriminatory margin for company/ dealers to be reduced B2B Sale- reduced cost to customer as ST/ED credit converted to GST available to them Representation to govt exemptions/merit rates 7.5%/11.5% 14.5%/18.5% 20% 20% Increase in cost of products for final consumers MRP Products - Price not altered- squeezed margin Non MRP Products- need of price variation to sustain margins Price rise- Consumer perception management Pricing decisions product-wise (considering impact of credits, rate of taxes on input/output) Marketing Strategy sensitization towards quality to offset price impacts Timely negotiations with distributors/dealers- avoid last minute resistance Impact on cash flows and working capital Key Action Plan Challenges

39 Our understanding of your business context (3/4) 39

40 Impact on Dairy Sector 40

41 41