gst primer oct_13
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GST-Primer
T Koshy Partner, EY
What I Cover Tax Basics Concept of GST Ideal GST Solution Design Current Implementation Model Challenges
Tax Basics
The Alphabets
Types of Tax Direct Tax - Income
Tax on Income Tax Deposit by the entity earning income
Indirect Tax – Expenditure Tax at every Sale Tax Paid by Spending Entity Tax Collected and Deposited to Govt Account by
Selling Entity
Indirect Tax - Evolution
Non-Integrated Manufacturing Integrated Manufacturing
VA =100 SP=110
VA =100SP= 231
VA =100SP= 364
ORE
STEEL
UTENSIL
Tax 10%
Tax 10%
Tax 10%
VA =300SP= 330
ORE
STEEL
UTENSIL
Tax = 0
Tax = 0
Tax 10%
Indirect Tax – Evolution to VAT TAX only Value Added Implementation of VAT
Input Tax Credit
VAT – Enablement .
VA =100 SP=110
VA =100SP= 220
VA =100SP= 330
ORE
STEEL
UTENSIL
Tax 10%
Tax 10%
Tax 10%
Input Tax Credit =10
Input Tax Credit = 20
Challenges
Challenges to any Tax Administration
Compliance Painless
Non-Compliance Painful
Equity and Efficiency in Administration
Ideal Model
One Rate for all Products Across Country
Single Enforcement Authority
Integrated ICT Solution Totally hands free
Processing
Risk Management
Meeting Multiple Objectives Fair and Affordable Tax
Different Rate for Different Products Influencing Economic Activities
Influence Export & Import Influence Geographical Location
Influence Consumption Luxury Goods, Sin Goods etc
Federal Structure of Government Manufacturing Stage Tax and Service Tax by
Central Government Trading Stage Tax By State Government
Multiple Objectives – At What Price
Complexity in Compliance Different tax collecting banks across
states Different tax rates across different
states Different returns submission across
states Diverse Enforcement mechanism Border clearance at each state
Multiple Objectives – At What Price
Complexity and dilution in enforcement Mis-Classification of productsHawala tradeTax Evasion
The Solution
Goods & Service Tax (GST)
Stakeholder Expectation
The foundation for design
Wish List - Taxpayer
Standard Rate across states
Standard Processes across Country
Registration Number, Amount, Account Head
Deposit at any Authorized Bank Branch
Multiple Payment Modes
Offline, Online, ATM, Debit/Credit Card, Mobile
Tax Credit Tracking
Refund to Bank Branch
Single entity for enforcement
Wish List - Banks
Standard Processes across Country
Who paid, How much, Which Challan, To Whom
Role based on their Core Strengths
Deposit at any Authorized Bank Branch
Multiple Payment Modes
Offline, Online, ATM, Debit/Credit Card, Mobile
Quick Feedback on Error
Standard Process for Error Rectification
Refund to Bank Branch
Wish List - Tax Administration
Quick Credit to Government Account
Prevent Fraud Claims
Enable focus on Core Strengths
Mapping of Tax Claim to Tax Deposit
Timely Digital Data Input
Easy and Quick Verification of Tax Claims
Mapping of Collection to Corresponding Enforcing
Unit
Wish List - Accounts & Audits
Quick Credit to Government Account
Ensure that due Processes are Followed
Prevent Leakage
Enable Focus on Core Strengths
Timely Digital Data Input
Analytics for Audit
Ground Reality Different States Use Different Sets of Banks Taxpayer Mapped to Bank/Branch Payment Modes Limited Multiple Flows for Funds and Data No Online Information of Tax Collection to DCT Offices Only AG gets Consolidated Collection Details
That too with Time Delay…. DCT Office does not get in time the Challan Details of
Tax Deposit at Treasuries in digital form Challan Matching with Return almost Impossible Even in DCT Offices the Challan Data is digitised and
with Delay
The GST Solution
GST Foundation Dual GST Destination Based PAN Based User Identification Number IGST Model for Inter-state Settlement Common Portal (GSTN) for Common Functions GSTN should enable Functional Control and
Flexibility for State and Central Tax Administration
Status
Empowered Committee of Finance Ministers
building consensus
Constitution Amendment Bill
Comprehensive Goods & Service Tax for Centre and
State CGST & SGST (intra state) CGST & IGST (inter
state)
Some Questions yet decided upn
Uniform SGST rate across all states ??
CGST enforcement by Centre and SGST by state
Status ICT Enablement
ICT Enablement
IT is Essential
IT Takes Time
IT work can start even with current level of policy
uncertainty
Decision on Common Integrated Portal – GSTN
GSTN SPV under Establishment POC under implementation by NSDL
Scope -GSTN
Uniform taxpayer interface Registration of user Tax Deposit Filing of Return
Computation for IGST Settlement Generation of Tax Ledger Data Extract for States MIS and Data Warehouse Support to Stake holders Feedback to Tax Payers A Cafeteria model of IT support for states with no/
limited IT infrastructure 24
Customer
InterfaceUser Registration
Returns Submission
Tax Deposit
Recording of Inter-State Goods Movement
Service Delivery
Status Track
Common Integrated Portal
Common E-Tax Portal for Banks
Acceptance & Consolidation of Return
Computation for Interstate Settlement
Interstate Goods Movement Tracking
Dashboard & MIS
Back End Enabler
Matching of Input Tax Credit
Process Automation of Enforcement Agencies
Assessmen
t Audit
Compliance Monitoring
Appeals
Policy Administrati
on
State-1 State-N CBEC
Assessmen
t Audit
Compliance Monitoring
Appeals
Assessmen
t Audit
Compliance Monitoring
Appeals
GST – The Dream Model
TAX collection & Inter-State Settlement
Collecting Bank Branch
Collecting Bank Branch
Collecting Bank Branch
Collecting Bank Branch
Collecting Bank Branch
Collecting Bank Branch
Bank I Bank N
RBIGSTN
State I State NCenter
Funds
Challan data
Reconciliation Data
Settlement
Fund
Challan data
GST e-TAX Portal
Taxpayer
Return
Enforcing Agencies
Tax Payer
OnlineFacilitation Centre
GST Return
Return Acceptance
Return Consolidatio
n
Matching Engine
Common Integrated Portal (CIP)
State - I State -N CBEC
GST Return Acceptance
Tax Collection and Settlement Tax Collection through a common set of authorized
banks for CGST, SGST and IGST Tax Deposit through single challan with SGST,
CGST and IGST separately accounted. Funds routed by banks to RBI:
CGST to Center A/C SGST to State A/C IGST to IGST A/C
Challan Details routed by banks to Common Portal Taxpayer files return to Common Portal
Sales – dealer wise ITC - dealer wise Tax deposit – challan wise
Tax Collection and Settlement contd… Common Portal computes fund transfer from
State A/C to IGST A/C and from IGST A/C to State A/C
SGST credit against IGST Fund from State to IGST
IGST credit against SGST Fund from IGST to State
Tax Ledgers by Common Portal Main ledger for each dealer Sub Ledger for each vendor of the dealer to match
ITC claim by dealer against ITC reported by the vendor
A simple Example Out flow from States
Simple Return for Dealer A
C S I
Tax Liability 100
ITC from Vendor B
C
S 60
I
IGST Deposit 40
Sub Ledger of A for Vendor B
ITC Reported by B(R)
ITC claimed by A (C)
60 60
IGST A/C
Verify if R >= C
Transfer from State to Center if R >= CIf R<C transfer C & common portal will provide input
for enforcement
A simple Example – 2 (out flow from states)
Simple Return for Dealer A
C S I
Tax Liability 100
ITC from Vendor B
C
S 60
I
ITC from Vendor D-C
S 10
I
IGST Deposit 30
Sub Ledger of A for Vendor B
ITC Reported by B(R)
ITC claimed by A (C)
60 60
IGST A/C
Verify if R >= C
Sub Ledger of A for Vendor D
ITC Reported by B(R)
ITC claimed by A (C)
10 10
A simple Example (inflow to state)
Simple Return for Dealer A
C S I
Tax Liability 100
ITC from Vendor B
C
S
I 40
SGST Deposit 60
Sub Ledger of A for Vendor B
ITC Reported by B(R)
ITC claimed by A (C)
40 40
IGST A/C
Verify if R >= C
Transfer from Center to State irrespective of match of R & C
If R<C provide input for enforcement
Tax Collection and Settlement contd… Common Portal
Compute dealer wise amount to be transferred to/from IGST A/C
Aggregate for all dealers in each State Net amount informed to be transferred intimated
to RBI Computation
System Driven and Automatic with no human intervention
Daily transfer for efficient settlement Business Rule Approved by Competent Authority
(CAG, CGA, RBI, EC & MOF) Process Audited Periodically by representatives of
Competent Authority
Tax Collection and Settlement contd… E-Payment
Phase 1 For value above threshold
Phase 2 All
Inter state settlement
Phase 1 – Based in Dealer wise summery of
Liability (& input tax credit)
Phase 2 - Invoice vise Details of liability & tax
credit
ReturnsGST Return to CIP
Phase 1 Dealer wise Summery of Liability (& input Tax
Credit) Matching Dealer wise Credit Dealer wise Ledger of ITC
Phase 2 Invoice vise Details of Liability & Tax Credit Matching Invoice-wise Tax Credit Invoice-Dealer wise Ledger of ITC
Tax Collection and Settlement contd… Total of SGST Credit against IGST for all
dealers in a state > Total IGST credit against SGST = Net outflow from state
Total of SGST Credit against IGST for all dealers in a state > Total IGST credit against SGST = Net inflow to state
Inter-linkage of GSTN & Central/ state System
Tax Authority Common Portal Dealer
State/ Center portal
Common Portal
Database
Tax IT Systems
State Database
Middleware APIs
Format Customization
Common Format
State/ Center Format
Scheduled Replication/ Sync
Jobs
GST Application
State/ CBEC Application
Treasuries
EDI Inter-linkages
Network of Banks
Policy Decisions Critical for IT User Registration Form and Process User Master Migration When can user registration commence GST Common Challan Form Common Set of tax collecting banks Payment Process Flow for Funds and Data Return (Frequency & Form)
IGST = C+S IGST Settlement
Business Rules Frequency Scope of temporary under-writing by center for smooth IGST
settlement. Input from state on adaptation / integration with GSTN
Risk Time
CostBest
Practices
Requirements
Technology
Security
A Balancing Act
“Part of the inhumanity of the computer systems is that, once it is competently
programmed and working smoothly, it is completely honest.”
- Isaac Asimov
Thank You
Broader Issues in e-Governance
IT is only part of the story
Process Design should be intuitive & in synch
with business practices
Be patient
But you have to tweak
Be ready to hold hands
Sometimes you need to push
Broader Issues in e-Governance
Learn to judge cribs
Government users needs special treatment
Benchmark and measure
Persistence is the key
Respect Data
Who owns the project
Tax - BasicsParameter Direct Tax Indirect Tax
What is taxed Income Expenditure
When is taxed Income Earned Expenditure Incurred
Compliance Income Earner Goods/ Service Provider
Policy Making & Enforcement Authority
Centre - CBDT Manufacturing – Centre CBECTrade – State - CTD
State Share Financial Devolution (FD)
Part Self Determined Part - FD
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