GST Era Beckons: Outlook on Petrochemical Industry

Transcription

1 GST Era Beckons: Outlook on Petrochemical Industry

2 Contents GST Framework in India GST rates GST model law Broad Architecture Impact of GST GST Implications Time of supply of Goods Place of supply of Goods Input Tax credit Transitional provisions Petrochemical products An overview. GST rates Fate of taking input tax credit Transition related issues Broad Impact Areas- Compliance/ Migration Business Impact Complete Process Reengineering? Broad Impact Areas Strategy/ Business decisions Broad Impact Areas Sales/ Marketing GST Era Beckons 2

3 GST GST Framework in India Dimensions of the proposed GST Taxation based on destination based consumption principles 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 What are the dimensions of significance? Taxable event of supply as against multiple taxable events for levy of present indirect taxes Cross utilization of CGST and SGST credit will not be permitted except under IGST 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 EOU to be treated at par with DTA units except benefit of Basic Customs Duty on import. Intra-State Inter-State CGST SGST IGST (CGST+SGST) * Threshold (for SGST and CGST) recommended by the GST Council is INR 2 mn.(inr 1 mn for special category states) Input CGST against CGST IGST CGST SGST IGST Input SGST against - SGST IGST Input IGST against IGST CGST SGST GST Era Beckons 3

4 GST rates GST Rates 0% Agri related goods % Bullion 5% Priority Goods & Common use items 28% Aerated drinks, luxury cars, cigarettes etc. 12% and 18% Residual Standard Rates GST Era Beckons 4

5 GST Model Law Broad architecture Transitional Provisions on Cenvat Credit, pending litigation, registration certificate, etc. State-wise Registration and Compliances GST Rates on Goods and Services notified. Introduced Concept of Point of Taxation for goods as well as service GST Architecture Valuation - Related party & transaction value concept Separate provisions for determining the place of supply of Goods/services Free Supplies of Goods/Services i.e. supplies without consideration no GST applicable, except transaction with related / distinct person Taxable supplies to include inter- State Branch Transfers GST Era Beckons 5

6 Impact of GST GST will have a multi-fold impact on different segment/operations, which can be summarized as below: GST Impact On Transactions On business decisions On business functions The manner in which following transactions get taxed would undergo a change: Imports Domestic procurement of inputs/ components / capital goods Valuation of products Supplies under warranty Reimbursement of expenses Services Number of business decisions and strategies may require a rediscovery under the GST regime, viz: Product pricings Make or buy Manufacturing arrangements Expansion plans Various business functions will see an impact of GST including: Taxation Finance and administration IT/ ERP Sales and marketing Legal Human resources GST Era Beckons 6

7 GST Implications Pre GST Scenario GST Scenario Impact Taxable Events Supply of goods / services b/w branches in different states Multiple Taxable events which includes: Manufacture Sale Service provided / Agreed to be provided Intra-entity supply of goods / services are not liable to tax Only one Taxable event which is called Supply. GST is payable on Supply of goods / Services. Supply of goods / Services between distinct persons i.e. branch offices in different states is a taxable supply in GST regime Input Tax Credits Tax Credit on Interstate purchases are not available. Requires reversal of proportional Tax Credit to the extent of exempt supplies. Credit of Inter-state transaction tax (IGST) is now available. Tax credit available to the extent of taxable supplies including zero-rated supplies. Option for banking industry to avail 50% of eligible input tax credit GST Era Beckons 7

8 GST Implications Pre GST Scenario GST Scenario Impact Tax invoices Under the present indirect tax regime, supply of goods and services to be made under the cover of an appropriate invoice. Additional disclosures in the invoice viz. HSN code, SAC code, location of recipient, etc. required in GST regime Compliance & Return filings Under present scenario, 10 returns (avg.) are required to be filed annually under Service Tax, VAT and CST laws Under GST, the compliance burden would increase manifold. Atleast 37 instances of filings per registration would be required. Additional compliance burden - Anti profiteering compliance. GST Era Beckons 8

9 Time of Supply of Goods Removal Forward Charge Earlier of Invoice Receipt of payment Receipt of goods per recipient Time of supply - goods Cash flow concern on advance received from customer Receipt of goods Reverse Charge Earlier of Payment made Receipt of invoice Continuous Supply of Goods Debit in books If successive statement of accounts or payments are involved Date of expiry of the period to which such statements/payments related to If no successive statement of accounts or payments are involved Earlier of Date of Invoice or Date of Payment GST Era Beckons 9

10 Place of Supply of Goods Supply involves movement of goods sale of goods Location where movement terminates for delivery to recipient Where goods are delivered before or during movement of goods (bill to ship to) Principal place of business of person to whom goods are transferred Supply does not involve movement of goods Location of goods at the time of delivery to recipient Where goods installed or assembled at site Place of installation or assembly GST Era Beckons 10

11 Input Tax Credit Meaning Input Tax Credit refers to credit of IGST/CGST/SGST paid on supply of goods/services for use in course or furtherance of business Time Limit to take credit Within one year from the date of invoice subject to earlier of filing of September return following end of the financial year to which invoice relates or filing of relevant annual return Reversal Requirements: ITC available only to the extent used for business purposes (in case of partial supplies) ITC available only to the extent used for taxable supplies (in case used for taxable/non-taxable/exempt supplies) Conditions for availing ITC Invoice/supplementary invoice/debit note from a registered supplier Goods/services are received and taxes are paid to appropriate Government Furnishing of return Where goods are received in installments, then credit can be availed after receipt of last lot. Where inputs/capital goods sent on job work- received back within 180 days/2 years respectively, if not, credit to be reversed GST Era Beckons 11

12 Transitional Provisions Input tax Credit Closing balance of credit as per earlier law to be carried forward and allowed only when the credit is allowed under both earlier law and GST law Price Revisions Any tax payable or tax reduction on account of price revisions upward/downward after the appointed date will be considered under GST Existing Litigation Existing litigation would be assessed as per the provisions of the earlier law Periodic Supply of Services GST is not payable if the supply of service has already been completed before the appointed date and tax has already been paid under earlier law GST Era Beckons 12

13 Impact on Petrochemical Products GST Era Beckons 13

14 Petrochemical Products : An Understanding Petrochemicals, also called petroleum distillates, are chemical products derived from petroleum. Primary petrochemicals are divided into two groups depending on their chemical structure: 1. Olefins includes ethylene, propylene, and butadiene. Ethylene and propylene are important sources of industrial chemicals and plastics products. Butadiene is used in making synthetic rubber. 2. Aromatics includes benzene, toluene, and xylenes. Benzene is a raw material for dyes and synthetic detergents, and benzene and toluene for isocyanates MDI and TDI used in making polyurethanes. Manufacturers use xylenes to produce plastics and synthetic fibres. Uses: Olefins and Aromatics are the building-blocks for a wide range of materials such as solvents, detergents, and adhesives. Olefins are the basis for polymers and oligomers used in plastics, resins, fibers, elastomers, lubricants, and gels. GST Era Beckons 14

15 Petrochemical Products : An Understanding Sources required for manufacturing petrochemicals: Methane and BTX are used directly as feedstocks for producing petrochemicals. However, the ethane, propane, butanes, naphtha and gas oil serve as optional feedstocks for steam-assisted thermal cracking plants referred to as steam crackers that produce these intermediate petrochemical feedstocks: 1. Ethylene 2. Propylene 3. Butenes and butadiene 4. Benzene How it is produced: Many petrochemicals are produced using extreme temperatures (over 1500 ⁰F) and pressures (over 1000 psi). This process requires large amounts of energy and sophisticated engineering. Because of these extreme operating conditions, energy consumption accounts for a significant portion of the total cost of production. As energy costs rise, the cost of doing business also rises. Access to inexpensive and reliable energy sources (such as natural gas) is essential for ensuring the petrochemical industry remains competitive in an increasingly global marketplace. GST Era Beckons 15

16 GST rates: GST 18% HSN classification : Petroleum gases and other gaseous hydrocarbons, such as Propane, Butanes, Ethylene, Propylene, Butylene and Butadeine ( Other than Liquified Propane and Butane mixture, liquefied propane, Liquified Butane and liquefied petroleum gases (LPG) for supply to household domestic consumers or to non domestic exempted category (NDEC) customers by IOC, HPCL or BPCL ) HSN classification Oils and other products of the distillation of high temperature coal tar, similar products in which the weight of the aromatic constituents exceeds that of non aromatic constituents, such as Benzole (Benzene), Toluole (toluene), Xylole (xylenes), Naphthelene. GST Era Beckons 16

17 Fate of getting input tax credit: Following products are kept outside GST ambit for time being, meaning thereby earlier taxes / duties shall continue to be required to be paid on procurement and accordingly cannot be adjusted against output GST liability. 1 Petroleum crude 2 High speed diesel Natural gas 4 Leading increase in procurement cost Motor spirit 3 (commonly Aviation 5 known as turbine fuel petrol) GST Era Beckons 17

18 Exemption granted Description Service provided by the Central Government, State Government, Union territory or local authority by way of registration required under any law for the time being in force Service provided by the Central Government, State Government, Union territory or local authority by way of testing, calibration, etc. Assistance of agent for getting registration or complying with the testing/calibration requirement of the company Remarks Notification exempts the service provided by Central/State Government, Union Territory or local authority for any fees charged for registration under any law for the time being in force Notification exempts the services provided by Central/State Government, Union Territory or local authority for any fees charged for testing or calibration required under any law for the time being in force. There may be regular requirement for sending sample goods for testing to the authorized laboratory maintained by governmental authority Since the fees paid for registration or for testing fees are exempted, even though paid by agent to governmental authority and subsequently claimed as reimbursement, it shall be exempted for payment from GST GST Era Beckons 18

19 Transition related issues Capital goods invoice pre GST implementation date, but received post GST implementation date Availability of input tax credit of the inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on the GST implementation date Whether one year limit shall be applicable in case of stock for which there is no duty paying documents. GST impact in regard to service and invoice received in pre GST era, but invoice received physically post GST implementation date GST impact on goods sent to job worker prior to GST implementation date GST impact on goods return, which were sold prior to GST implementation date and returning back in post GST implementation date GST impact in regard to upward or downward revision of price of the goods sold prior to GST implementation date Fate of the refunds claim made under pre GST era. Fate of input tax credit of the tax eligible and availed in pre GST era GST impact of goods/services tax on which was leviable under the earlier laws GST Era Beckons 19

20 Broad Impact Areas Compliance and Migration Forms/Layouts Tax Invoice Bill of Supply Receipt Voucher Payment Voucher Self Invoicing Invoice by Input Service Distributor Sales Order Form Purchase Order Form Debit Notes and credit notes Books of Accounts for each place of business Production or manufacture of goods Inward supply of goods/services Outward supply of goods/services Stock statements Details of input tax credit Details of output tax payable Forms / Layouts Books of Accounts Chart of Account Process Group Order to Cash Procure to Pay Record to Report Plan to Stock Chart of Accounts New G/L codes Account determination Business Processes Master Data Master Data Registration details and place of business Tax categories, Tax codes Access Sequences Business Processes Impacted Registrations Sales and purchases of goods and services, Debit notes, credit notes, etc. Tax payments, Filing of e- returns Processes handled in peripheral systems (CRM, SRM, Dealers Management etc.) GST Era Beckons 20

21 Business Impact Complete Process Re-engineering? A complete reassessment of the processes and procedure for the procurement models of the companies Re-structuring of the existing contracts on account of change in taxability, change in pricing model, change in delivery/supply model etc. Review of the pricing policies and sales structures along with the supply chain teams Examining procedures in relation to the distribution channels, warehousing, stock transfers, local vs. inter-state purchases etc. Re-evaluate the working capital requirements for the business Analyze the changes in tax cost, tax credits, working capital requirements, etc. under existing and GST regimes Review of the documentation / record aspects under GST, viz. Invoicing requirements, Maintenance of records and registers, Preservation of records, Continuity of Concessional Forms etc. GST Era Beckons 21

22 Broad Impact Areas-Strategy/ Business decisions GST may result into incremental costs for companies. Similarly, GST has potential of bringing in incremental benefits for organizations. The potential costs and benefits may include: GST Costs Working capital impact cost Additional transportation cost Incremental human resource cost IT/ ERP upgradation cost Cost of training different stake-holders Costs passed on by other constituents of supply chain Benefits Opening of input credit Benefits of consolidation of operations Benefits from revised procurement model Benefits passed on by other constituents of supply chain Make or buy Centralized/ decentralized operation Future investment/ expansion GST Era Beckons 22

23 Broad Impact Areas- Sales and Marketing Inter-State supply or Intra-State supply to be determined for goods as well as services Taxability of branch transfers Taxability of Sales promotion schemes Time of Supply for Sales on approval basis Treatment of sale returns Compulsory registration requirement for Agents Post-supply discounts / Target discounts GST Era Beckons 23

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