PROPOSAL FOR GST READINESS NEEDHELP PRIVATE LIMITED
XYZ & CO CHARTERED ACCOUNTANTS
The Case Study of Need Help Limited
Need Help Limited is a Rs 25 Crore manufacturing Company with presence in three states in India. It is owned and managed by a team of three dynamic entrepreneurs who understand technology and marketing but know little about taxes. Their Finance function is headed by a senior gentleman who manages the accounting and compliance. He is not well versed in GST and is not confident enough to manage the transition.
The entity is keen on ensuring complete compliance with the new law and to ensure that they do not incur any losses on account of GST
They need your help. Advise …
You are presenting to the owners of the Company on how you can enable the entity to be GST Ready
You have a one hour time slot to explain and win the engagement
Overview
GST – A NEW LAW
FRAMEWORK
GST IMPACT AREAS
PROPOSAL
ABOUT XYZ
GST – THE NEW LAW
Goods and Services Tax
Consumption - Destination based tax
Tax levied on “Supply”
Decentralized registration
Monthly returns for each registration
Dual GST comprising
CGST + SGST for local supplies
IGST for Interstate Supplies
Exports zero rated;
Imports subject to IGST
Rate Structure finalized IG
ST
Set
Off IGST
CGST
SGST
CG
ST
Set O
ff
CGST
IGST
SG
ST
Set O
ff
SGST
IGST
Slide 6May 2017
Industry
• Reduction in multiplicity of taxes
• Mitigation of cascading/ double taxation
• Development of common national market
• Liberal credit regime and continuity of credit chain
• Simpler tax regime • Fewer rates and exemptions • Conceptual clarity
(Goods vs. Services)
Government
• Simpler tax systems
• Broadening of tax base
• Improved compliance & revenue collections
• Corruption to decline
• Efficient use of resources
Objective & Benefits of GST
Majority of goods of Consumer Price
Index. This may include fruits,
vegetables, food grains, essential
medicines etc
Essential items of mass consumption used by common
people
Rate of Tax for Goods and
Services
Rate of tax for Goods and
Services
Higher rate for luxury, demerit and sin goods.
0% 5% 12% 18% 28%
RATES
Registrations
• State wise registrations and Compliances
Returns
• Returns to be filed for reach registration
Supply
• Concept of Supply is introduced
• Both goods and services are covered under Time of Supply
• Related Party supplies
Transition
• Cenvat Credit on transition defined
• Pending litigation
Threshold
• Rs 20 lakhs for registration ( Rs 10 lakhs NE States )
• Rs 50 lakhs for composition dealers
Taxes Outside GST
•Basic Customs duty•Stamp duty•Taxes and duties on electricity
•Taxes and duties on alcohol for human consumption
•Taxes and duties on petroleum products may be included within GST from a notified date
Central taxes subsumed
• Additional Duty of Customs
• Special Additional Duty of Customs
• Central Excise• Service Tax • Central Sales Tax• Central Surcharges and
Cesses related to supply of goods and services
State Taxes subsumed
• State VAT • Other state levies
such as Luxury tax, Entry tax, Purchase Tax Entertainment tax, etc
• State Surcharges and Cesses related to supply of goods and services
GST FRAMEWORK
Slide 9May 2017
Levy
• Dual Tax regime of Central and State Government
• CGST + SGST on intra-state supplies
• IGST on inter-state supplies
Rate of Tax
• Slab rates proposed –Nil, 5%, 12%, 18% and 28%. Cess proposed on luxury items
• Basic Customs Duty on Imports shall continue
Exclusions
• Petroleum products, Natural Gas
• Alcohol
• Electricity
• Stamp Duty
Credits
• Cross-utilization permitted inter segoods and services
• No cross-utilization between CGST and SGST
• Input Credit has to be availed /maintained State-wise
Valuation
• Transaction value based mechanism
• No MRP valuation
• Separate rules for related party valuation
Place of Supply
• PoS Rules to determine levy/ jurisdiction
• Location of service provider/ recipient
Time of Supply
• Goods – Earlier of date of removal/ invoice/ payment
• Services – Earlier of invoice or payment
• GST payable immediately on receipt of advances
Vendor Management
• Likely tax on purchase from unregistered vendors
• Payment of taxes & filing of returns by vendors is mandatory for the Company to avail credit
GST FRAMEWORK
GST IMPACT
What will change in GST – Almost Everything
GST
Supply Chain and
Contracts
IT System
Accounting System
Pricing
Compliances
Cash flow
Rate of tax
Nature of tax –Intra-State Vs. Inter-
State
Goods Vs. Services
Place of supply Credit availability
Threshold limit
Valuation
Time of SupplyLiability to deposit
tax
Availability of exemptions
Registration requirements
Compliances and documentation
What will change in GST – Almost Everything
Financial Impact
Tax structure on sales
Particulars Existing scenario GST scenario Impact
Exports • No Duty• Zero rated sales• No GST
Sale to domestic customers within the state
• VAT @ 5% • SGST + CGST
Sale to domestic customers outside the state
• CST @ 2% or peak rate (non issuance of C-FORM) as the case may be
• IGST – 18% or 12%
Sale to EOU • Exempt • GST would be applicable
Sale to SEZ• No duties would be
applicable
• Zero rates sales• No GST would be applicable• Refund / Rebate to be claimed
Stock transfer
• Input tax credit to be reversed for stock transfer under VAT law
• No tax on Stock Transfer
• Stock Transfer to be taxed.• No requirement for ITC
reversal. • Valuation to be adopted as per
the prescribed valuation rules under GST
Arrows denotes working capital changesThumbs up/down denotes tax cost/savings
Key Changes
Building Blocks – An illustration
Component Financial Impact Accounting
System
IT System Compliance Harmonise
Optimise
Revenue cycle Tax rates Chart of Accounts Master Data and
transaction
configuration
HSN, Invoice
format, Related
Party transactions
Depot operations ,
Procurement
Cycle
CST ; larger gamut
of credits
Clearing accounts,
scheme of entries
Auto matching to
be enabled
ITC reversals and
reconciliations
Transitional stock /
credits
Sources of supply
– eg. Composition
dealers,
Inventory and
Manufacturing
locations and
related movements
Stock transfers Stock valuation Plant locations to
be configured, no
more Memo
records
Increase in scope
of movements
subject to taxation
EOU
Special Aspects Employer –
Employee
transactions
Tax on advances,
interest, penalties
e way bill to be
configured
Returns formats
and matching
Goods in stock
with non excise
invoice but ED
suffered
Time, Place and Value of Supply
Structuring an Engagement
Scope of Services
Understanding the Business and Impact Assessment
Road Map for Implementation
Implementation Assistance
Slide 19May 2017
Structuring an Engagement
One Day Training Program
The Project Team
Terms of reference
Methodology
Reporting
Time Lines
Fees
Client Business
Harmonise and Optimise
GST
Slide 20May 2017
Terms of Reference
Financial Impact Assessment
Accounting System and IT System Changes
Supply Chain and Review of Key Contracts
Conceptual Changes
Procedural aspects
Transition enabling – Migration and opening credits
Status of assessments and pending litigation
Modular
End to End
Reviewer
PHASE 1UNDERSTANDING THE BUSINESS AND GST IMPACT
Client Business Understanding
Understanding the Client Business comprises the following actions
Phase 1 – Knowledge of Client Business
Nature of Clients Business
Activity Locations & registrations
Procure to pay and input tax credits
Order to cash and tax pay-outs
Manufacturing / Trading processes
Outsourcing , Job work
Concessionaires, if any
Tax compliances, records and returns
Contract reviews
Financial and MIS reports review
Knowledge of
Business
Current Tax Structure
GST Overlay
Report on Changes
Client Business Understanding
Understanding the Client Business comprises the following actions
Phase 2 – Current tax Structure
Products / Services and taxes charged
Input taxes , credits
Reverse Charge Mechanism
Tax Collections at Source
Net Tax liability and Understanding of taxes which are pure costs
Valuation procedure where relevant
Accumulation, Recording, Documentation and Accounting entries in relation to all indirect taxes
Knowledge of
Business
Current Tax Structure
GST Overlay
Report on Changes
Client Business Understanding
Understanding the Client Business comprises the following actions
Phase 3 – GST Overlay
Extrapolating GST to present business data
Financial Impact assessment
Business Model
Margin analysis, Cash flow planning
GST Conceptual Changes
Concept of Supply, Time of Supply , Place of Supply, Value of Supply
Compliance Aspects
Registrations , Returns , Formats of documents, payment of taxes
IT Systems
Master data, Transaction data , Incorporating formats, matching of credits
Contracts
Recommend Renegotiations and Changes
Knowledge of
Business
Current Tax Structure
GST Overlay
Report on Changes
Client Business Understanding
Understanding the Client Business comprises the following actions
Phase 4 – Report on Changes needed
A review of the client business vis a vis the GST law will enable us to present a comprehensive overview of the following
GST impact on current business
Key Changes needed in terms of GST at a conceptual and compliance level
Knowledge of
Business
Current Tax Structure
GST Overlay
Report on Changes
PHASE 2 ROAD MAP FOR IMPLEMENTATION
ACTION TRACKER – ROAD MAP
After identifying and explaining the key aspects requiring transition under the GST, XYZ will work closely with stakeholders to enable the client to harmonise and optimise taxes under GST in the most efficient and effective manner
Discussions with all department heads to explain the impact of GST and the changes that will be necessitated
Detailed tracker of all actionable items ( IT as well as non IT ) along with
Description of item
GST Champion
Process owner / operator
Nature of change
Build date
UAT date
Final go live date
Meetings with business heads, supply chain team, IT team to present results of study and to
collaborate to enable most ideal scenarios for Company’s
operations/ business divisions
PHASE 3 IMPLEMENTATION SUPPORT
IMPLEMENTATION SUPPORT
XYZ will provide hands on support to
assist in implementing necessary
systems, processes and structures to
enable GST readiness for aspects
identified and agreed in Phase II
Operational Support
IT System Implementation
Contract Modifications
Credit Optimisation
Go Live
OPERATIONAL SUPPORT
Our trained team will help in completing all relevant tasks to enable efficient and timely implementation
Standard Operating Procedure documents for GST related actions in the entire transaction life cycle
Vendor / Customer help desks to assist in queries
Identify Location, Time and Place of Supply and enable relevant tax configurations
Assistance in determining Value of Supply as needed
Assistance in transition stock / unutilised input credit balance reporting and certification
Master Data Mapping
Accounting GL mapping
Tax Code mapping
Check accuracy of tax rates configured
Assistance in registrations
Configuring report formats
CONTRACT MODIFICATIONS
Contract Reviews are necessary to ensure that no unnecessary tax obligations are carried by the entity during migration and to ensure that all taxes are optimised
Suggest deposits / penal clauses based on vendor track record / financial capabilities
Inclusion of ISD related Clause in contracts to enable distribution of credits in case of supplies to users in multiple registrations
Review of existing contracts with vendors and customers
Drafting of suitable tax clauses
Identify opportunities for renegotiation
CREDIT OPTIMISATION
XYZ will assist the client in developing systems and procedures to ensure that all credits are tracked properly and all eligible input credits are properly availed on a timely basis
Record all credits at source
Avail all eligible credits
Credit matching
Transition Credits
Movement of credits
Robust ISD system
Vendor help desk
IT SYSTEM RELATED SUPPORT
System migration is a key focus area in GST implementation. XYZ can support in defining the specifications, drafting BBP’s , and data migrations
Define all critical IT touch points
Processes for obtaining data
Accuracy and completeness of masters
Integrity of transactions processed
Reporting formats
Interfaces with Return filing utilities
GO LIVE FOR GST
The Go live phase will involve continuous monitoring and audit of systems to ensure that all deficiencies are identified and systematically rectified
User Acceptance Testing
Post implementation reviews and audits
Rectification of errors and deficiencies
Department level training initiatives to explain the new systems and processes
Enterprise wide SOP’s and revisions
Name :
Indirect tax lead
Name
Name :
Name
THE GST TEAM – S P R & CO
Slide 36
ABOUT US
About the Firm with focus on indirect tax capabilities
The team that will handle the engagement
Slide 37
Risk and IT Advisory
Foreign Trade Policy PracticeTransaction and Funding Advisory
Corporate Law & Insolvency
Direct Taxation
Assurance and Accounting Indirect Taxation
Goods and Services Tax
With Clients in ..
| automobiles | banking | consumer goods | energy | financial services | health care |
| insurance | logistics | manufacturing |printing | packaging | paper | retail | services | shipping |
Our Services ..
Slide 38
CONTACT US
Address and Contact Details