Impact and Way Ahead

The much awaited tax reform in India

Winner of India Tax Firm of the Year 2016 at the Asia Tax Awards

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Current Indirect Tax Regime in India

Need for GST

GST – A Game Changer

Decoding the Model GST Law

Likely Areas of Business Impact

Key Opportunities, Issues and Challenges

Day One Readiness for Migration to GST

Our Story

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4

CurrentIndirect Tax Framework

Excise Dutyon manufacture of goods

Service Taxon provision of services

Customs duty– on import of goods

Central Sales Taxon inter-state sales

Levies by Union

VAT/purchase tax – on intra-state transactions

Others – Entertainment tax/Luxury tax etc

Entry tax/LBT on entry of goods into the state

Levies by States

In India, there is an entire gamut of indirect tax levies regulated by both Union and States

Tax on Deemed SuppliesWorks Contract, Leasing

Stamp duty typically on

immovable property

t

Customs Dutyon import of goods

VAT/Purchase Taxon intra-state transactions

OthersEntertainment Tax, Luxury Tax

Entry Tax/LBTon entry of goods into the state

Stamp Duty

typically on immovable property

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SN Levy Present Effective

Peak Rate (%)Point of Taxation

Collection and Administration

1 Basic Customs Duty 10 Import of goods into India Union of India

2 Additional Duty of Customs (CVD) 12.5 Import of goods into India Union of India

3 Special Additional Duty of Customs ( SAD) 4 Import of goods into India Union of India

4 Cess on Customs (Education Cess) 3 Import of goods into India Union of India

5 Excise Duty 12.5 Manufacture of goods within India Union of India

6 Service Tax 14 Provision of service Union of India

7Cess on Service tax

(Swachh Bharat Cess and Krishi Kalayan Cess)1 Provision of service Union of India

8 Central Sales Tax (CST) 2 / 5 / 15 Inter-state sale of goodsState Government of

dispatching State

9 Value Added Tax (VAT) 5 / 15 Intra-state sale of goods State Government

10 Entry Tax/Octroi/Local Body Tax variousEntry of goods within the State / Local

Municipal limits

State Government /Local Municipal Authority of

importing State / Municipality

Cost Pass through / tax credit available

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Too many taxes –multiple levy of taxes on same transactions

Conflict between Centre and State for few levies

Non-Assesseefriendly approach of the authorities –different revenue authorities for different levies

Cascading effect of taxes – credit of one indirect tax not available against another

Multiple compliances- huge compliance burden on assesses under different indirect tax levy

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Simplified tax structure –minimal number of rates

Integration of prevailing indirect taxes to ensure uniformity

GST expected to be neutral to factors of business processes, models and geographical locations

Minimal cascading with enhanced eligibility to claim tax credits

Relatively simplified compliances

India would be one single unified market under GST – ”ONE Nation ONE Tax”

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Central Levies

Central Excise

Service Tax

CVD & SAD

Central Cesses

Addn. Excise

State Levies

VAT & Ent. Tax

Purchase Tax

Lottery Tax, State Cess

Entry Tax &

CST

Luxury Tax

CGST, SGST and IGST

All aforesaid taxes to be subsumed in proposed GST

* Basic customs duty would continue as such and would not be subsumed in GST

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Central Goods and Services Tax (Central GST) (CGST)

Levy by Central Government on intra-state supply of goods and/or services

State Goods and Services Tax (State GST) (SGST)Levy by State Government on intra-state supply of goods and/or services

Integrated Goods and Services Tax (Integrated GST) (IGST)

Levy by Central Government on inter-state supply of goods and/or services

Levy On Transactions

Intra-State

Central GST

State GST

Inter-State

Integrated GST

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Not a tax change but a business change

Assimilation of multiple indirect tax systems into a single unified tax system

Will have wide ramification across an organisation (discussed later in detail)

Finance and Record Keeping

Product Pricing and Sales Promotion

Business Procurement and Supply Chain Management

Information Technology

Human Resources

Contract/Agreement

Survival dependent on how an organisation prepares itself for the new tax regime

Indian companies should start informing their parent entities outside India about the impact of GST on their operations in India

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Valuation MRP based valuation shall be discontinued

Taxes to be levied on ‘transaction value’. Specific Valuation Rules framed

After sales discount not to be deducted from ‘transaction value’

Grey Areas The Model Law is silent on fate of exemptions to SEZ units.

Model Law is silent on continuation of Swachh Bharat Cess and Krishi Kalyan Cess

Taxes Intra-State supplies to attract Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST)

Inter-State supplies to attract Integrated Goods and Services Tax (IGST)

Imports to be treated as Inter-State supplies and hence shall attract IGST

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Exports to be

zero rated

SUPPLY INPUT TAX CREDIT OTHER ASPECTS

Taxability on

the basis of

Place of Supply

RulesTime of Supply

Rules to

determine

taxable event

Certain supply

without

consideration

to be taxable

TDS applicable

on certain

supplies

Inter-branch

supply of

services to be

taxable

Reverse charge

on certain

services as well

as ‘goods’

Exemption list

not yet

published

Credit available

after vendor

pays GST and

files return

Upper cap of

timeline to

claim ITC

specified

Transitional

provisions for

carry forward

of current

credit to GST

regime

Refund of taxes

paid wrongfully

on payment of

correct taxes

Mandatory 37

returns and

upto 61 returns

(as applicable)

per year per

registration

State-wise

registration

under GST

Monthly

payment of

taxes

Refund

application

could be filed

within 2 years

from the

relevant date

Invoice level

details to be

furnished in

returns

Audit by CA or

CMA if

turnover

exceeds the

prescribed limit

Monthly

matching of

ITC based on

disclosures by

Company and

its vendors

Negative list of

ineligible

credits

specified

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• Increase in cost of services due to increase in tax rate• IGST on stock transfers• Working capital blockage

Cost Impact

• PAN Based registrations• Requirement of state-wise registrations under the new GST law• Increase in the number of returns to be filed

Compliances

• Revision of contract pricing• Restructuring of tax clauses• Indemnity clause

Contractual Clauses

• Sourcing• Distribution• Inventory management

Supply chain

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• Input cost structures improvement possibilities• Review of margins• Decision to pass on the benefits

Pricing

• Invoicing & Accounting• Capturing taxes and credits• Transition of systems

IT / ERP

• Alignment with business• Tax computation and returns• Transition issues – existing contracts, tax credits, registrations

Taxation

• Business Operating Models• Location analysis taking into account business and tax

perspectives• Working Capital / Cash flow Management

Business / Strategy of Organisation

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• Updates on GST Scenario• Training Modules for internal stakeholders (Management,

employees)• Training to external stake holders (Suppliers, Service providers)

Awareness and Training

• Certain industries / types of customers outside of GST• Certain states outside of GST

Managing change and what-if scenarios

• Multiple location accounting operation• Handling multiple payments across states of supply• Budgeting and planning exercise • Process and controls design and documentation

Finance and Accounting

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PRODUCT PRICINGChange due to reduction in cascading

SUPPLY CHAIN AND VENDOR MANAGEMENTLogistics management, warehouse re-engineering, various parameters for selection of suppliers

SUPPORT FUNCTIONSLegal, HR functions may undergo change

FINANCE AND ACCOUNTINGChange in budgetary planning, increase in accounting operations

BUSINESS STRATEGYRevisiting operating models; working capital management

RE-ENGINEERING OF IT SYSTEMS

Transition of accounting and invoicing systems towards GST

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One Time Exercise

Configuration/Re-configuration of Accounting/Reporting Software

- Splitting the company accounts into different verticals

- Deciding the new scheme of accounting entries

- Revising the Chart of Accounts

Updation of Master Data such as vendor master

Recurring Work

Accounting according to the new scheme

Inter-entity credit pool accounting

Reporting and reconciliations

- Between entities and verticals

- Between customers and vendors

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Imports could be beneficial

Seamless flow of credit

Pricing policies

Impact

CVD and SAD to be replaced by cross-creditable IGST

Net cost of Imports could be reduced

Evaluating alternative procurement strategies key to reap the benefits

Seamless flow of credit to reduce overall cost component of products

Evaluation of new avenues for credit availment

Transitional credit

Cost of goods likely to be reduced as cascading of taxes to be reduced to minimum

Analysis of overall GST impact on the business to help chart out pricing policies well in advance – gain competitive edge

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State

Incentives

Exemptions to be curtailed

GST on supply without consideration

Impact

Area based exemptions likely to be discontinued

Could require revisiting pricing policies

May lead to cost savings due to seamless flow of tax credit

Cost-benefit analysis required to structure the activity under GSt regime

Exemptions list under Central Excise law to be pruned and aligned to State VAT laws as recommended by CEA led committee

Upfront exemptions to be restricted to essential commodities

Exemptions to be replaced with refund mechanism for key products

Supplies without consideration to attract GST

Stock transfers, goods sent to/ received from job worker, free supplies?

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Future of various tax structuring models

Sale in transit/sale in course of imports

Sale for merchant exports/deemed exports

Impact on various commercial arrangements

Job working arrangement

Loan licensing model

Toll manufacturing

Contract manufacturing

Own manufacturing

Time crunch to implement ERP systems

At least 6 months of period needed to implement New IT System

Uniformity in Tax Rates

Different Rates for SGST or Single Rate

Range / Band of Tax Rates

Different rates for goods and services

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Threshold Limit

Traders

Manufacturer/Service Providers

Place of Supply Rules

Long Term Projects

Role of IT Team

Vendor Infrastructure

Availability of credit of the products outside GST regime

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How far have other companies progressed so far - completed activities?

Awareness session

Train the management andemployees on GST Law /Draft Law through trainingprograms

GST Planning

Appoint Steering Committee,

Making a transition plan,

Hire consultants for IT Transition

Pre-Legislation Preparation/ Representation

Ascertaining ‘As is’ tax positions, preparation of SOP’s, ascertain contingent contractual liability & Representation

GST Impact Study

Detailed GST impact analysis will have to beconducted to ascertain the impact on pricing,costing, margin decisions, supply chainmanagement and other such areas

Post-Implementation Compliance

Ensure the that post the implementationcompliance are conducted without anydefaults.

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Preparation Transition Post-Implementation

Pre-legislation Preparation (based on draft model law)

Carry out pre-legislation impact analysis on all the products/services and their business models and arrive at:

Cash flow, working capital and tax impact and opportunities

Compliance impact

IT impact

Finance and accounting impact

GST training for employees, management personnel and vendors

Vendor preparedness training

Business model impact and opportunities

After Final Law

Revalidate the impact analysis Assist in becoming GST compliant Assist the company in finalising

indirect tax efficient structure

Indirect tax credits (VAT, Service Tax, etc.)

Tax positions and open assessments

Prepare IT and accounting system to implement GST (SOPs, IT updates)

Analysis of business model impact and opportunities

Implementation

Focused, expert team managing the GST implementation activities, execution plan, budget, timelines, reporting and cut over

Handholding

Comply with GST legislation with assistance :

GST Registrations

Tax Payments

Transaction recording

Return Filing

Requisite Documentation

Handhold till process stabilisation

Outsourcing of voluminous and non-strategic tasks

Assist in executing long term strategic changes in business model

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STEP 1 GST IMPACT

ANALYSIS

STEP 2 REPRESENTATION TO

THE GOVERNMENT

STEP 3 GST TRANSITIONS –

PREIMPLEMENTATION

STEP 4 TRAINING AND

WORKSHOPS

STEP 5 INFORMATION TECHNOLOGY MIGRATION

STEP 6 REALIGNMENT OF BUSINESS MODEL

Current Indirect Tax Position-’As Is’

GST Applicability

GST Impact Identification

Working Capital /Tax Costs Impact Analysis

Identifyingalternate business structures

Identifying the areas for representation

Liaison with the concerned trade associations and tax authorities for representation

Impact analysis as per the final law

Registrations Legal Opinions Development

of SOPs Transition

Compliances Accounting &

Reporting compliances

Vendor Training

Employee Trainings in variousdepartments

Employee IT Trainings

IT System Assessment / Modification and Migration

Reports Designing for Compliances

Testing

Procurement Logistics Storage Manufacturing Distribution Delivery Sales and

Marketing Business Plan

and Working Capital

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Ensure Business Continuity

Avoid Cash flow Issues that could disrupt Business

Operations

Avoid Penalties - Be GST complaint & have

GST complaint Vendors

Stay competitive in terms of Pricing and

Cost base

Explore Opportunities for Cost Saving

Realign Business Model according to

Business Logic

Managing the whole Transition

GO LIVE ON THE APPOINTED DATE BY THE GOVERNMENT

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Finance Department

Procurement Department

Supply Chain Department

Legal Department

IT Department

Consultant/PMO should work closely with the said steering committee members

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5 States have already ratified CAB till 22 Aug ‘16

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Extensive experience in indirect tax, offering wide-ranging business insights to our Indian and multinational clients inconducting tax studies, compliances on various indirect taxes, litigation support, refund claims of indirect taxes, andimplementation of the accounting system in line with applicable indirect taxes.

50 Years of experience in Indian taxation,offering wide-ranging business insights to Indianand multinational clients

Empaneled with NACEN, apex institute of GoI for IDT capacity building; trained over 3000 government employees to prepare for GST

Winner of India Tax Firm of the Year 2016 at the Asia Tax Awards

Regular knowledge partners with prestigiousorganisations like ASSOCHAM, NASSCOM, CIIand other bilateral chambers of commerce

Team member consists of various professional from CA, MBA, ICWA and the legal fraternity

Working closely with a well known Indian law firmas our preferred counsel for GST

Authored books on GST and Service Tax

Substantial experience in handling global GSTthrough our compliance outsourcing arm

Prepared a standardised GST tool and prepared mechanism for review, identification and quantification of industry wide issues

The contents of this presentation are intended for general marketing and informative purposesonly and should not be construed to be complete. This presentation may contain informationother than our services and credentials. Such information should neither be considered as anopinion or advice nor be relied upon as being comprehensive and accurate. We accept no liabilityor responsibility to any person for any loss or damage incurred by relying on such information.This presentation may contain proprietary, confidential or legally privileged information and anyunauthorised reproduction, misuse or disclosure of its contents is strictly prohibited and will beunlawful.

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