implementation of gst ca kamal agga rwal

8/12/2019 Implementation of Gst CA Kamal Agga Rwal

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Goods & Services Tax (GST)

May 2011

-The Road Ahead


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Contents

Introduction

Current Status

Present indirect tax regime

Constitutional Amendment

GST in India

Implications for businesses

Way forward

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Introduction


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Introduction GST would be the single most significant fiscal reform of Independent India

till date

GST is expected to result in major rationalization and simplification of

transaction tax structure at both Central & State levels

GST is expected to subsume all indirect taxes currently applicable, thus

eliminating cascading effect due to multiplicity of taxes

GST in pure form is expected to significantly redistribute taxes across goods

and services

GST would significantly broaden the tax base and therefore the revenue neutral

rate is likely to be significantly lower

GST will necessitate a fundamental redesign and reengineering of supplychain. It will enable supply chain to be operationally efficient as compared to

tax efficient as on date

Accordingly GST is expected to consolidate inventory holdings at strategic

locations, thus eliminating inefficiencies in inventory holding

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Introduction GST is also expected to reduce inventory holding cost, as businesses would be

able to claim credit of the tax paid on inventories leading to improved cashflows

Highly efficient IT capabilities both at tax administration level and at tax

payers level are imperative for successful implementation of GST

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Current Status


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Current Status Constitutional Amendment presented in Parliament, but no discussion or

agreement

After Constitutional Amendment is passed by the Central Government, it has to

be ratified by atleast 50% of the State Assemblies before becoming effective

Still no agreement on various issues between the Empowered Committee and

the Central Government

States still insisting on retaining the fiscal freedom guaranteed under the

Constitution of India

Administrative machinery at the Centre and at various States are more or less

ready and waiting for the political mandate

The earliest date of implementation could be October, 2012

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Central levies Customs duties, levied on import of goods into India

Basic Customs duty

Additional Customs duty, levied in lieu of Excise duty (also known as CVD)

Additional duty of Customs, levied in lieu of Sales tax (also known as SAD)

Excise duty, levied on manufacture of goods within India

Service tax, levied on provision of specified services

Research & Development cess, levied on import of technical know-how into India

Credit of CVD and SAD available for utilization towards payment of outputExcise duty, subject to conditions

Credit of CVD available for utilization towards payment of output Service tax,

subject to conditions

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Statelevies Value Added tax (VAT), levied on sale of goods within a State

Central Sales tax (CST), levied on inter State sale of goods

Entry tax, levied on entry of goods into a local area

Purchase tax, levied on purchase of goods made without payment of VAT/ CST

Stamp duty, levied on registration of instruments including sale/ purchase of

property

Credit of VAT, Entry tax and Purchase tax available for utilization towards

payment of output VAT/ CST, subject to conditions

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Contd


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Fallacies of the present regime

The present indirect tax regime is a disjointed value chain as no credit is available

of

SAD paid on import of capital goods/ inputs to service providers

Customs duty/ Excise duty on non specified capital goods

Customs duty/ Excise duty/ Service tax to traders

VAT to service providers

CST paid on inter State purchases

The disjointed value chain results in

cascading of taxes

loss of credit higher inherent tax costs

lack of transparency and level playing field

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Fallacies of the present regime

Each tax operates on a narrow tax base, rather than on the entire value chain

Hidden tax costs in the value chain, results in competitive disadvantageous

situation

Creates barriers within the country as against creating India as one market

Multiple levies increase complexities, litigation and compliance costs

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Contd


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Constitutional Amendment


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Constitutional Amendment The proposed Constitutional Amendment aimed at levy of tax on supply of

goods or services by both Central and State Governments

Clause 29A of Article 366 related to deemed sale is proposed to be omitted

Import of goods shall be deemed to be transactions of inter state trade or

commerce. Thus, import would also attract GST

Certain petroleum products would be outside the scope of GST. TheParliament would continue to have powers related to levy of tax on their

manufacture or production whereas States shall have powers to levy tax on sale

thereof

Sale or purchase of newspapers and advertisements published in such

newspapers would be brought in the tax net of GST The Parliament and Legislature of every State will have concurrent power to

make laws with respect to GST, subject to the condition that the Parliament

will continue to have exclusive powers to make laws where the transactions

takes place in the course of inter state trade of commerce

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Constitutional Amendment Elaborate provisions proposed with respect to the Constitution of a GST

Council for making recommendations to the Union and States on variousmatters related to GST

A GST Dispute Settlement Authority to be constituted for adjudicating any

dispute or complaint referred by the State Government or the Union

Government on any issue arising out of the deviation from any

recommendation of the GST Council resulting in loss of revenue to any State orUnion Government

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GST in India


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GST in Indiaobjectives

Integrated Goods and Services tax, with free flow of credits across goods and

services in the entire value chain

Barriers of States eliminatedIndia would operate as a single market

More rational logistics

Economies of scale

No cascading of taxes

Cost competitivenessno hidden tax costs

Transparent tax regime

Simple invoice based regimeeasy to administer and comply

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GST in Indiasalient features

The GST in India would be a dual GST, which would comprise of

Central GST (CGST)

State GST (SGST)

The CGST would replace

Central Excise duty (consequently CVD as well)

Service tax

The SGST would replace

VAT (including purchase tax)

Entry tax, Luxury tax, Octroi, etc.

State surcharge

Stamp duty ?

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Both CGST and SGST would simultaneously apply to intra State taxable

transactions in the value chain

Inter State transactions would be subject to Inter State Goods and Services Tax

(IGST)

CGST and IGST would be levied through a Central legislation while the SGST

would be levied through legislations of individual States The basic features of the laws such as chargeability, taxable event, taxable

person, valuation provisions, basis of classification would be uniform across the

States, to the extent possible

The distinction between the taxable events such as manufacture of goods, sale of

goods or provision of services would have very limited relevance

CGST and SGST on goods proposed to be 6% and 10% while on services 8%, by

both Central and State governments. Thus aggregate GST rates would be 12%

and 20% on goods and 16% on services

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CGST and SGST would be paid separately to the Central and the respective State

governments

IGST would be paid to the Central Government who would operate as a clearing

house for this purpose

Cross credit between goods and services would be available. However, no cross

credit between CGST and SGST would be allowed Accordingly, both CGST and SGST can be utilized towards payment of CGST

and SGST respectively, except on inter State transactions

Both CGST and SGST can be utilized towards payment of IGST. Similarly, IGST

can be utilized towards payment of CGST and SGST

Destination State would get the revenue Accordingly, the State Government of the originating State would pay the Central

Government an amount to the extent of the CGST credit utilized in payment of

IGST

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Contd


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Similarly, the Central Government would pay the State Government of the

recipient State an amount equal to the IGST utilized in payment of SGST

Exports would be zero rated, while the imports would attract both CGST and

SGST, in addition to the Customs duty

The place of supply rules would have to be framed for determination of

appropriate State to levy tax, particularly in the case of provision of services ofinter State nature

Administration of CGST and SGST would be with respective governments

Each tax payer would have to submit both CGST and SGST returns to both the

authorities

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Contd


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A major discontinuity in transaction taxes

Continuity of competitiveness landscape needs to be ensured

Identification and mitigation of risks

Manage change

Continuity of business operations during transition

Training of staff at remote locations in order to ensure total compliance

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Key decision areas

Dispute regarding Goods vs Services continues

Works contracts

Telecom contracts

Lease transactions

Bundled supplies, software etc.

Indigenous procurements vs imports

Place of supply in case of services

Inverted duty structure due to multiple rates

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Transition to GST

Change in pricing policies

Taxes already sitting in inventory of goods and services

Availing of all credits, including on transition date

Allocation of credits over taxable and exempt supplies

Tracking parallel credits of CGST, SGST and IGST Payment of GST on imports

Credit/ refund of GST on exports

Amendment of ERP/ accounting system

Changes in invoice formats/ records being maintained

Amendment in registration certificates

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Way forward


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Way forward

A GST implementation strategy is imperative !!!

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GST implementation

strategy


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GST implementation strategy

Mapping the

as is

Impactassessment

studyImplementation Go Live

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Mapping the as is

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Mapping the as is supply chain

Indirect tax incidence of the as is supply chain

Recoverable taxes

Creditable taxes

Taxes to the bottom line


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Impact assessment study

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Superimposing GST model on as is supply chain

Working out the GST impact on business

Identification of key areas of impact

Evaluation of options and sensitivity analysis


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Implementation

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Alignment of the business structure/ supply chain to the GST regime

Change ERP and other MIS systems

Review all contractual arrangements with suppliers, customers and other

distribution partners and compute incremental incidencerenegotiate

Communicate with all stakeholders

Train staff and distribution channel

Compliance manuals, clearly setting out criterion for availing credit, manner of

utilization and complying with the prescribed requirements


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Go Live

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Amend/ apply for new registration

Review the formats of invoice, challan etc.

Avail credit of the transition stock in each State

Post implementation

Review of credits availed and utilized

Checking of books of accounts, invoice and other records

Review of the computation of GST

Review of the returns


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Thank you

implementation of gst ca kamal agga rwal

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