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Opportunities in GST – Impact studyIndirect Tax Committee The Institute of Chartered Accountants of Indiawww.idtc.icai.org

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Webcast Coverage – 10th October -2016

. • GST Initiatives of Indirect Taxes Committee

. • Brief background of GST – 10m

. • Transitional Challenges -10m

. • Impact Simple Examples – 10m

• Analysis of Some Important Impact Areas – 50 + 25m

• In between - ERP Challenges – 15m

• Benefits of Impact Study – Client – 5m

• Question / Answer – 15 m

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GST Initiatives of Indirect Taxes Committee

Background Material on Model GST Law in July’ 16

Suggestions on Model GST Law and draft GST Rules – submitted on 30th Aug’16 & 28th/29th September 2016

Presentations before CBEC & Empowered Committee of State Finance Ministers – 10th ,18th & 30th Aug’ 16

Identification and Training of new speakers on GST -

FIP I - July/ Aug’ 16 – 133 selected FIP II – Sept’ 16 - 223 selected

17 Study Groups created across the country

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GST Initiatives of Indirect Taxes Committee

Discussion Paper on Key Transitional Provisions under Proposed GST regime – Jan’ 16

Workshops, Seminars and Conferences: More than 100 workshops, seminars and conferences on GST have been organised across the country.

• In addition to the above, ICAI is developing the following: Video recording on almost entire topics of Model GST Law Handbook on GST for Traders, Manufacturers & Service Providers FAQs on Model GST Law. Standardised PPT on Model GST Law Certificate Course on GST – after enactment of GST Law

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1. Multiple taxes lead to double taxation & cascading effect

2. Structure involving multiple taxes / rates not in sync with global practices 3. High cost of tax

compliance and double taxation leads to higher prices of goods & services

4. Lack of uniformity in provisions of different law and interpretations

5. High cost of tax collection leads to lower tax yield to the Government

Need for GST

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Impact on Economy

GST - Impact on Economy

Improve export competitivenes

s

Boost FDI investment in

India

Increase in value of Indian

Rupee

Rate of 18% for Mnf. &

traders could reduce product

cost

Rate of 18% equals present

15% rate (goods credit)

Push GDP growth by 1.5

– 2 %

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Origin based tax to destination based

tax

All stages of value chain –

Primary/Secondary /Tertiary including

retail

Taxable event is ‘supply’

Centre GST & State GST to operate concurrently

CGST & SGST on intra state supplies

in India

IGST on inter state supplies in India.

Exports – zero rated Imports – [BCD + IGST]

Key Features

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Componentsof

GST

Taxability

Supply

Place of Supply

Registration

Time of Supply

Valuation

Tax Credits

Returns

Critical Components -Model GST Law

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Transition to GST

1.Process re-engineering & training

2. Review of present credits, compliance

3. Carry forward of CE/ST/VAT credits

4. Stock lying with agents on transition-

impacts6. Existing

registration- migration to GST

8. Impact on pending refund

claims- filed/unfiled

9. Continuing contracts-

Revision, Spill over to GST

4. Pending legal cases

5. Unfinished transactions

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IT Systems

ERP Changes

Configuration & Customization

Forms & Challans

MIS & Reporting

Organizational Structure

Master Data

Transactional Data

Transitional Migration

Impact of GST on ERP

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Creation & elimination of

accounting transactions for Deemed Supply

Transactional adjustment for Impact of tax on

Advance

New transaction for taxation of inter

state stock transferNew format for Bill of supply

Updation of transactions in ERP

for mis-match identified via GSTN

Transactional Impact on ERP

IT Systems

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IT SystemsS No Area Current Scenario Proposed under GST Changes Required in ERP

1 Organization Structure changes

Currently the tax structure are divided into multiple taxes.

Single law with three taxes Changes will be required in tax structure from multiple taxes to one tax and corresponding different components of taxes to be configured for deducting, depositing, payment, credit, interest and penalty.

2 Master Data Management

Key masters hold information required as per current laws

Information at master level to be maintained as per GST requirements

Vendor master – GST registration number of vendor location wiseCustomer master – GST registration number of customer location wiseInventory master – For goods HSN code and for services SAC codes

3 Transaction data Scenarios are based on requirements of current taxes, such as tax on manufacturing, tax on sale and tax on services

Proposed solution will change to tax on supply

a. Changes in existing transaction postings would be required.

b. Identification of redundant transactions from old laws

c. Creation of new transaction scenarios as per new law

4 Reporting & MIS

Multiple reporting formats for filing of different taxes

One common reporting format

Reporting formats to be changed as per GST requirements and will remain same across locations and organizations

5 Forms & Challans

Different forms as per old laws & locations

Common forms and challans as per GST

Key forms such as tax invoice, bill of supply to be redesigned.

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IT SystemsS No Area Current Scenario Proposed under GST Changes Required in ERP

6 Configuration & Customization

Not required As per new law configurations & customizations to be changed

a. Updating ERP patch provided by ERP companies

b. Configuring tax account mappings as per GST requirements

c. Customization as per requirements of business, e.g. treatment of advance, deemed supply etc.

7 Transitional changes

Not required Credit from previous laws may be allowed to be carried forward to GST, subject to conditions laid down in transitional provisions of GST law

Key decision points for migrations:a. Close or Amend open PO’s on Cut-

Off date.b. Close or Amend open Sales Orders

on Cut-Off date.c. Forms & Templates, GST Ready:

• Sales invoice • Sales order • Purchase order • Debit notes & • Credit notes• Temporary provisions: • Returns of goods sold or

purchased before GST and returned after Cut-Off

d. Stock in transit during cutover activities, etc.

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Illustrations - Manufacturer Ex: 1 - When manufactured and sold locally

Pre-GST

Manufacturer Tax Type Rate Amount Tax Credit availment

On Manufacture Excise 12.50% 10,000 1,250 CVD, ST, ED creditOn Sale VAT 14.50% 11,250 1,631 VAT input credit

Total 27% 2,881

Particulars-(A) Cost TaxNet Amt (Manf.) 10,000 0Net Amt (Consumer) 11,250 1,631

Post-GST  

Manufacturer Tax Type Rate Base Amt Tax Credit availment

On Manufacture CGST 9% 10,000 900 CGST & IGST credit

On Sale SGST 9% 10,000 900 SGST & IGST credit

Total 18.00% 1,800

Particulars-(B) Cost Tax

Net Amt (Manf.) 10,000 0

Net Amt (Consumer) 10,000 1,800www.idtc.icai.org

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Illustrations - Manufacturer

Ex: 1 - When manufactured and sold locally

Difference (A – B) Cost Tax

Manufacturer 0 0Consumer saves/(expenses) 1,250 (169)

Note: 1) Cascading impact in pre & post GST not factored.2) Similar reduction at vendor end would go to reduce

the base amount, not factored.

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Illustrations - Manufacturer Ex: 2 - When manufactured and sold Inter-state

Pre-GST Manufacturer Tax Type Rate Amount Tax Credit availment

On Manufacture Excise 12.50% 10,000 1,250 CVD, ST, ED creditOn Sale CST 2,00% 11,250 225 Cannot claim credit

Total 27% 1,475

Particulars-(A) Cost TaxNet Amt (Manf.) 10,000 225Net Amt (Consumer) 11,250 1,475

Post-GST  Manufacturer Tax Type Rate Base Amt Tax Credit availment

On Manufacture CGST 9% 10,000 900 CGST & IGST credit

On Sale IGST 9% 10,000 900 CGST, SGST & IGST credit

Total 18.00% 1,800

Particulars-(B) Cost Tax

Net Amt (Manf.) 10,000 0

Net Amt (Consumer) 10,000 1,800www.idtc.icai.org

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Illustrations - Manufacturer

Ex: 2 - When manufactured and sold Inter-state

Difference (A – B) Cost Tax

Manufacturer saves 0 225Consumer saves/(expenses) 1,250 (325)

Note: 1) Cascading impact in pre & post GST not factored.2) Similar reduction at vendor end would go to reduce the

base amount, not factored.3) Additionally in pre-GST limitation/refund of VAT = Total ITC

for product less 2%.

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Illustrations - Trader Ex: 3 - When Traded Inter-state

Pre-GST Trader ( Mumbai) Tax Type Rate Amount Tax

Purchase from Nagpur VAT 14.50% 11,250 1,631 Cost Includes ED Sale to Chennai:-To Trader (Incl. profit-1000) CST 2.00% 12,250 245To Consumer (Incl. profit-1000) CST 14.50% 12,250 1,776

Particulars-(A) Cost Tax

Net Amt (Trader) 11,250 245

Net Amt (Consumer) 12,250 1,776

Post-GST  Trader (Mumbai) Tax Type Rate Base Amt Tax

Purchase from Nagpur C&S GST 18.00% 10,000 1,800

Sale to Chennai IGST 18,00% 11,000 1,980

Particulars-(B) Cost Tax

Net Amt (Trader) 10,000 0

Net Amt (Consumer) 11,000 1,980www.idtc.icai.org

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Illustrations - Trader

Ex: 3 - When Traded Inter-state

Difference (A – B) Cost Tax

Manufacturer saves 1,250 245Consumer saves/(expenses) 1,250 (204)

Note: 1) Cascading impact in pre & post GST not factored.2) Similar reduction at vendor end would go to reduce the

base amount, not factored.

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Illustrations - Trader Ex: 4 - When Traded Intra-state

Pre-GST Trader ( Mumbai) Tax Type Rate Amount Tax

Purchase from Nagpur VAT 14.50% 11,250 1,631 Cost Includes ED Sale to Pune:-To Trader (Incl. profit-1000) VAT 14.50% 12,250 1,776To Consumer (Incl. profit-1000) VAT 14.50% 12,250 1,776

Particulars-(A) Cost TaxNet Amt (Trader) 11,250 0Net Amt (Consumer) 12,250 1,776

Post-GST  Trader (Mumbai) Tax Type Rate Base Amt Tax

Purchase from Nagpur C&S GST 18.00% 10,000 1,800 Sale to Pune C&S GST 18,00% 11,000 1,980

Particulars-(B) Cost TaxNet Amt (Trader) 10,000 0Net Amt (Consumer) 11,000 1,980www.idtc.icai.org

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Illustrations - Trader

Ex: 4 - When Traded Intra-state

Difference (A – B) Cost TaxManufacturer saves 1,250 0Consumer saves/(expenses) 1,250 (204)

Note: 1) Cascading impact in pre & post GST not factored.2) Similar reduction at vendor end would go to reduce the

base amount, not factored.

Assessee being a manufacturer-cum-trader shall benefit

immensely during the GST regime as prior restriction between

various taxes are non-existent.www.idtc.icai.org

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Impact areas

Unlearn – Relearn

Concepts

Trader

Manufacturer

Service Provider

NGO/Govt.

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Impact areas re-engineering needed?

Need to revisit the processes

and procedures being followed

presently

SOPs- to be redesigned for key

business processes- at plants and HO

level

Re-engineering of process as per tax optimization

under GST

Staff training to impart knowledge of GST, its impact & key processes

and ways of doing the work

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Re-engineering benefits

Pro-activeness = Efficient business

Cash flow surplus: Credits claim

Issues are addressed before

hand

Vendor classification & discussion

Tax planning between

IGST/CGST/SGST

Reduction in penalty & litigation

Smooth functionality

between processes

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Impact areas- Levy

Total Tax - Outgoing

Non - recoverable

Recoverable (Input)

1. Sales team

2. Depot in-charge

TRAINING

3. Accounts

team

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Impact areas - ProcurementsProcurement source- to be

realigned?

Change in EOQ levels, lead times,

carrying costs

Revision in purchase budgets

Revision in product costing

Alternative source of

procurement

Vendor rating –

important criterion

Procuring with a type of GST to avoid

accumulation of credit

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Impact areas – Credit c/f

Claim of Credit

C/f

In GST As per rules

(yet to be notified)

Past creditOnly if eligible

in GST

Transition – litigation?

Claim of credit on stocks

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Impact areas – Exemption

Claim of Exemption

Trader

Service Provider

Manufacturer

Works Contractor

If trading in goods listed in the negative list, other than any taxable ancillary services provided. SST or composition scheme– no InterstateMight be similar to Mega exemption notification 25/2012-ST

Supply to Job worker may be taxable under GSTOther exemptions may continue?

As WCT is considered a service – Composition Scheme not available. Exemptions is any awaited.

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Impact areas – Composition

1. Turnover to be less than 50

lakhs – 2%?

2. Composition scheme for traders only and not for

services

3. Works contract -Service

- No composition

4. Vendors opting for

composition in GST – shall

reduce

No ISSNo

Credit to

Dealer or

receiver

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Impact areas - Vendor Management

Review current vendors history to identify non-compliant vendors

GST Compliance rating to identify non-compliant vendors

Identify multiple new vendors, get revised quotes

Conducting vendor education programmes for unorganized vendors

Review price of all related party vendors to avoid disputes in transaction value

Suggest vendors to follow similar exercise - better vendor relationships

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Impact areas – AgreementsSpill over contracts to be reviewed

Tax planning & legal intricacies

New projects- regn needed.

Ex: Construction industry. Paying around 25% tax presently, in GST 18%

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Impact areas – Accounts

Records – IGST/CGST/SGST based; Regular

recos

Returns – 37/ 49 for a single

registration

Entry Validation +

Periodic verification – reduction of

errors

Inward/Outward Supplies + ISD

uploaded

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Impact areas – Audit

Internal

AUDIT

Pre-GST

Review present compliance, book keeping, procurement, contract, etc.

Continuous check – Easy & accurate compliance

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Impact areas – SOP

SOP – Indirect

taxes

Introduce /update

SOP – Key business

processes

Re-design at all levels

SOP – Vendor &

Procurement

Tax & cost planning

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Impact areas – Disclosures

To department - bonafide

Financials – Banks

(Increase in WC) & Stat.

audit

Internal documents –

PO, Supply documents, offers, etc.

To be explicit

In case of doubt; Avoid longer period demand and penalty due to malafide

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Mapping of Taxes

Finance

• Identify the configuration of procurement taxes

• Identify configuration of output taxes

Transaction

• Identify the entire supply chain of various transactions

• Prepare flow chart

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Identify change

Identification of change

co-ordinates

Tax incidence

Timing of payment of taxes

Value of Supply

Rate of taxes

Exemptions

Credit positions

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Mapping of Cost

Discussion with the commercial team for various possibilities of transaction structuring

Identification of comparative disadvantage points

Transaction wise GST Costs

GST cost for overall organization

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Strategize to Optimize GST

Strategy

Registration

Branches

Job workVendor

management

Transaction

structuring

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Implementation Assistance

Assess compliance needs in

GST

Assess training needs

Prepare a Manual

Training & Complianc

e Assistance

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GST value addition/Benefits

Early study =↓ -ve Impact &

↑ +ve impact

Missed creditsTo be availed and c/f

Reversed creditsDocumentation and

accounting

ReconciliationFinancials & Returns

Credits in stocks Appeals(credit) if not cleared – Withdraw and c/f

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GST value addition/Benefits

Take advantage of procurement

Avoid issues with vendor/customer post GST

Optimize the tax

Optimize the credit to vendor, self & customer

Make representations

Recruit/train officers well in advance/ out-source

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Questions?idtc@icai.in Website: www.idtc.icai.org Presented by: CA Madhukar N HiregangeCA Rohini AgarwalCA Bhavesh Gupta

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