training with the institute of chartered accountants of india (icai)
TRANSCRIPT
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
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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
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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
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….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
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….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
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….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
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….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
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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
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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
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….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
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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
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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
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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.
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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
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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
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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
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