goods & services tax (GST)

v. s. krishnanMEMBER (gst)

cbec

Presentation Plan GST – Why? Legal Requirements for proposed GST Features of GST Model Procedural Aspects Current State of Play Issues under Discussions Impact on Industry Areas where Industry can contribute

2

GST – Why ? Reduce barriers of inter-state trade & create

a Common National Market Redress the imbalance in taxation between

manufacturing & the service sector Private Investment choices should be

influenced by economic considerations and not by tax rates or tax exemptions

Reduce multiplicity of taxes and ensure transparency

Reduce the incidence of taxation by expanding the taxable base

Mitigation of cascading / double taxation 3

Legal requirements for proposed GST

Constitutional amendment to enable the Centre to levy & collect CGST beyond

manufacturing stage the States to levy & collect SGST on Services

Model legislation for CGST, IGST & SGST Rules to be drafted for Place of Supply Rules

to determine location of supply of goods or services

to determine whether supply is intra-state or inter-state

Rules to be drafted for laying down procedures for the administration of CGST, IGST & SGST specific measures to be made for Dispute

Resolution & Advance Ruling

4

Features of GST Model.… Destination based taxation Dual GST Model

Central GST (CGST) & State GST (SGST) on intra-state supplies

Integrated GST (IGST) on inter-state supplies Integrated GST (IGST) on imports Additional Tax not exceeding 1% on inter-state

supplies of goods alone Taxation on a common base Common taxable event - Supply of goods or services

or both for a consideration Export of goods or services – Zero rated Common list of exempted goods or services 5

….Features of GST Model.…

Optional Threshold exemption for both components of GST

Optional Compounding scheme for taxpayers having taxable turnover up to a certain threshold above the exemption

All goods or services likely to be covered under GST except: Alcohol for human consumption - State Excise plus VAT Electricity - Electricity Duty Real Estate - Stamp Duty plus Property Taxes

Petroleum Products – to be brought under GST from a later date on recommendation of GST Council

Tobacco products – under GST plus Central Excise 6

….Features of GST Model… Three tier GST Rate structure –

Merit rate for essential goods Standard rate for goods and services in general Special rate for precious metals

Floor rate with a small band of rates for standard rated goods or services for CGST & SGST

HSN based classification of goods Service Tax Accounting based classification of

services

7

….Features of GST Model….

Centre’s Taxes proposed to be subsumed- in the nature of indirect taxes on supply of goods or services Central Excise Duty Additional Excise Duty Excise Duty levied under the Medicinal & Toiletries

Preparation Act Service Tax Additional Customs Duty commonly known as

Countervailing Duty (CVD) Special Additional Duty of Customs (SAD) Surcharges & Cesses

8

….Features of GST Model…. State Taxes proposed to be subsumed- in the

nature of indirect taxes on supply of goods or services State VAT / Sales Tax Central Sales Tax Purchase Tax Entertainment Tax (not levied by the local bodies) Luxury Tax Entry Tax (All forms) Taxes on lottery, betting & gambling Surcharges & Cesses

9

….Features of GST Model…. Tax payments by supplying dealers in their

own State Availability of seamless credit to buying

dealers Utilization of Input Tax Credit by buying

dealers CGST credit for paying CGST & IGST in that

order SGST credit for paying SGST & IGST in that

order IGST credit for paying IGST, CGST & SGST in

that order No credit of Additional Tax

10

….Features of GST Model Credit of SGST used for payment of IGST – to

be transferred by Exporting State to the Centre

Credit of IGST used for payment of SGST – to be transferred by Centre to Importing State

Inter-Governmental Transfers to take place at the end of Tax Period based on the Return filed by the taxpayer Fund settlement a matter between Centre &

States No role of taxpayer in inter-governmental fund

settlement Central Government to act as a clearing

house and transfer the funds across States

11

Procedural Features Uniform State wise e-Registration Common e-Return for CGST, SGST, IGST &

Additional Tax Common periodicity of Returns for a class of

dealers Uniform cut-off date for filing of Returns Mandatory reporting of supply & purchase

invoice details prior to or along with filing of e-Return

System based verification of returns on monthly basis

System based validations of ITC availed, utilized & Tax payments

Single challan for all four type of tax payments

12

Current state of play….

Constitution Amendment Bill passed in Lok Sabha Pending with Select Committee of Rajya Sabha

GST Council to be constituted after enactment of Constitution Amendment Bill

Reports under approvals: Place of Supply Rules IGST Model Business processes relating to

Registration, Refunds, Return & Payments

13

….Current state of play

Model GST Law being drafted: Authorizing the Central & State Governments

to levy GST on intra-state supplies (CGST & SGST)

Authorizing the Central Government to levy GST on inter-state supplies (IGST)

Levy of GST on imports GSTN already incorporated as a Section 25

company in March 2013 GSTN already received bids for establishing IT

framework 14

Issues under Discussions Rates of CGST, IGST & SGST Threshold limits of exemptions & compounding List of exempted goods & services Transitional provisions for treatment of accumulated

CENVAT credit Dispute Resolution Mechanism Centre-State mechanism for deciding on future changes

in rates & changes in the exemption list for goods and services

Distribution of responsibility between the Centre & State in implementing the three pillars of the compliance verification system – Return Scrutiny, Audit & Anti-evasion

Treatment of existing area based exemptions Treatment of current exemptions

15

Impact on Industry….

Procurement Inter-state procurement of goods & services – location no

longer a constraint due to credit eligibility Inter-state vs. Intra-state GST – no longer impact the

sourcing decision Manufacturing

Multiple small size plants vs. mega plants Decision based on impact on logistics cost vs.

manufacturing cost Relocation of plants based on overall costs & service

levels Costing

Impact on cost of input /service - rate change, full creditability and/or withdrawal of exemptions

16

Operational

….Impact on Industry….

Distribution Warehouse need not be State specific One warehouse can supply to more than one state &

one state market can actually be serviced by more than one warehouse

Location of warehouse may get decided by the center of gravity of demand cutting across many states

Size of warehouse would be more determined by the market opportunities proximate to the warehouse location

Distribution network to align with market demand & competitive advantage

Warehousing may need relook 17

Operational

….Impact on Industry….

Pricing Impact on overall pricing of the goods & services –

factoring of GST credits Supply Chain

Impact on cost of operationso Compression of the supply chaino Disintermediationo Unfettered credit throughout the supply chaino Uniformity in Sourcing Decisions –

Centralization Tax Challenges

Place of Supply Rules; Transition stock; Negative list; saving clauses, etc.

18

Operational

….Impact on Industry….

Working Capital / Cash Flow – likely increase Higher tax outgo on procurement of goods & services Shift in taxable event from manufacture to supply Shift in point of tax collection Replacement of exemption by refund schemes Taxability of branch transfers/inter office supplies/captive

consumption Input credits

Availability of accumulated credits on transition to GST Continuity of ISD concept Amplified credit availability Credits for mixed supplies Credits on goods from excluded sectors

19

Financial

Redesign IT systems Accounting Change in formats of invoices, reports, returns, etc. Redefining the logic & updating the masters

Training / Communication Staff training on compliance requirement Realigning with procurement & distribution partners Regular communication with stake holders

Compliance requirement Registration Tax payments Statutory declarations and Returns

20

Infrastructural

….Impact on Industry….

GST would lead to de-centralization of indirect tax function

Focus on strategy, processes & technology to manage indirect taxes

Greater stake in accurate reporting due to significant input tax credits as compared to the present scenario

Tax administration to use IT enabled platform & processes, e.g. tax data warehouse, online tracking of inter-state movements, information exchange etc.

Need to re-design & re-engineer the tax function21

….Impact on IndustryTax Management

Areas where industry can contribute

Treatment of procurement of goods & services for exports

Treatment of royalty/license fee in valuation of imported goods under GST regime

Valuation in case of stock transfers Treatment of deemed sale (i.e. lease, works-

contract, etc.) Classification of goods & services Manner of exemptions for backward areas Place of Supply Rules Transitional issues Dispute resolution mechanism 22

THANK YOU