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