GOODS AND SERVICE TAX - IMPACT ON

BUSINESS

All rights reserved | Preliminary & Tentative

FEBRUARY 12 2015

Prashanth Bhat l Director l BMR & Associates

GST ROAD MAP l EXPECTATION

Constitution Bill tabled
at the Parliament

Ratification by more than

50% of State Legislatures

GST Council set up within 2

months of presidential assent

GST Constitution Bill

Approval by both
houses of
Parliament

Bill sent for

Presidential
assent

Bill receives
assent and
becomes Act

GST legislations

Model GST legislations /

white papers (Centre,
States and IGST)

Final GST legislations

(Centre, States and IGST)

I
M
P
L
E
M
G
E
S
N
T
T
A
T
I
O
N

All rights reserved | Preliminary & Tentative

April 2016

TAXES PROPOSED TO BE SUBSUMED

Key Central Levies

Key State Levies

Value Added Tax/ Purchase
Tax

Service tax

Elements of Customs Duty

Countervailing duty
Additional customs duty

Subsumation
of taxes

Central Sales Tax

Entry tax

Including cess and surcharge

on these taxes

Basic Customs Duty on imports expected to continue

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Excise duty

Goods and Services Tax (GST) - Largest indirect tax reforms in India

GST to be a consumption based tax

GST expected to benefit

Taxpayers (in the long run), in terms of simplified taxation and compliance,
uniformity across states and minimal cascading of taxes

Reduced tax burden on consumers

Increased revenues for the Government with easy administration

State and Federal system of taxation to be maintained - GST in India shall

be a dual tax structure

Central GST; and

State GST

Every State likely to have its own SGST law; CGST law to be implemented
by the Centre

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GST - A SNAPSHOT

GST - A SNAPSHOT

GST to be levied on all transactions of supply of goods or services or both

Shift in taxable event, from the existing manufacture, transfer of property in

goods, provision on services, etc

Taxes to ordinarily accrue to the State of consumption

Integrated GST (IGST) to be imposed on inter-state supply of goods and

services and on imports
Rate of IGST CGST plus SGST (of consumption State)
Parliament to formulate principles to determine place of supply and for inter-state
trade or commerce

Additional tax proposed at 1 percent on the interstate supply of goods, to

the State from where the sale originated
No credit of the same expected to be available

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GST
l PROPOSED
CREDIT
STRUCTURE
GST
PROPOSED
CREDIT
STRUCTURE

IGST

CGST (input side)

SCGST

CGST

SGST (input side)

IGST

CGST

IGST

SGST

Taxpayer to track the input credits separately for IGST, CGST and SGST and the
utilization of such credits
Credit pool to be maintained State-wise!

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IGST (input side)

All rights reserved | Preliminary & Tentative

KEY AREAS OF IMPACT

IMPACT l MANUFACTURING

Manufacturing to be neutral by and large

Increase in compliance and reporting requirements

No levy on manufacture but on supply

CST cost of 2 percent to be eliminated - replaced by 1 percent additional

tax (for two years)

Increased rate of GST on goods and services- Higher working capital

requirement

Product pricing
Depends on GST rates, additional GST credits in the supply chain

Petroleum products excluded from GST net- impact on tax cost

Job-work exemptions? Valuations? Place of supply?

All rights reserved | Preliminary & Tentative

No deemed manufacture issues

IMPACT l TRADING

Purchase cost should reduce

Due to increased credits in the procurement chain

Pricing on the sales side and actual impact on margins depends on the GST rates

Warehousing may still matter

Due to likely rate arbitrage in procurement State

Possible tax stock transfer of goods

Positive Impact on e-commerce tax to be paid to destination States

Ongoing disputes on taxation state to be irrelevant, under GST

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Due to 1% additional tax on interstate supplies

IMPACT l IMPORTS
Imports to attract basic customs duty and IGST

Whether payable to the customs authority at the stage of clearance of goods or

GST authority post clearance on a periodic basis?

Whether payable at the port of import or basis destination of goods in the bill of
entry filed?

Customs and tax functions of companies would need integration/ co Levy of 1 percent additional tax on imports?

All rights reserved | Preliminary & Tentative

ordination

IMPACT l SERVICES
Services sector to be significantly impacted by GST
Financial impact
Potential increase in rate of tax (from 12% to ???)
More credit available
Likely increase in working capital impact
Services to be taxed at a State level (in addition to CGST) challenges for PAN
India contracts, involving service delivery at State level

Decentralized compliances likely for SGST at State level

Possible centralized compliances for CGST

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Compliance and contracting related impact

IMPACT l REAL ESTATE

Land and immovable property to be outside GST net continue to attract
stamp duties

Increased credits in the procurement chain - could result in increase in

margins for developers

Likely increase in output GST rates from the present tax rates

Construction by developer for landlord (under area share JDAs) should

continue to be taxable under GST

End customer price to be dearer unless increased taxes are absorbed by the
developer on account of increased credits / reduction in construction cost

Needs special focus on valuation, time of payment, liability of landlord, etc

Fate of composition schemes for developers? To exist with no credits?

All rights reserved | Preliminary & Tentative

OVERALL
IMPACT
l BUSINESS
OVERALL
IMPACT
l BUSINESS
Financial impact

Need to gear up for

being subject to dual
administration by the
State and Centre on
the same transaction

Ascertain impact on
cash flow, working
capital

Relook into
procurement/sourcing
pattern

Possible changes in
costing and pricing on
account of change in
tax rate, enhanced
credits

Transition of
accumulated credits
especially CVD / ED
credits in trading stock

on account of GST rates

being in range of 22-27%

Likely impact on topline

to be evaluated

Infrastructure impact
IT infrastructure has to
be geared up to
support GST
framework

Capturing multiple taxes

IGST/SGST/CGST

Support decentralized
compliance/accounting

Capturing and
maintenance of statewise credit data

Appraising vendors,
customers &
employees of the GST
scheme

All rights reserved | Preliminary & Tentative

Operational impact

All rights reserved | Preliminary & Tentative

KEY POINTS TO LOOK OUT

GST RATE
Expected rate(s) of GST
Whether there would be a standard rate as well as merit rate under GST?

All rights reserved | Preliminary & Tentative

Whether GST rate for goods and services would be same?

TRANSITIONAL ISSUES

Mechanism to ascertain taxability of transactions where the payment,

invoice, delivery of goods/provision of services are spread over pre and
post GST regime

Treatment of accumulated VAT credit in the hands of the tax-payers

Treatment of tax-paid inventory as available with trade/manufacturer as on

date of implementation of GST

Mechanism to claim credit of built-in excise duty component on stock

All rights reserved | Preliminary & Tentative

Eligibility to be set-off against levies of SGST, CGST and IGST

INTERSTATE SUPPLIES

The Parliament is expected to formulate rules for determining the place of

supply of interstate transactions

Whether the proposed rules are expected to be aligned to current Place of

Provision of Service Rules, 2012?

Has the potential to be a source of dispute for revenue between the States
resulting in litigation in the hands of taxpayers

All rights reserved | Preliminary & Tentative

COMPLIANCE AND ADMINISTRATION

Whether a taxpayer has to report to Central as well as State GST

authorities?
How will return filing work under GST?
-

State-wise returns for CGST, SGST & IGST?

State-wise returns only for SGST?

Single return indicating taxes payable in each State?

Requirement to seek registration in each state ??

Who shall administer / assess IGST?

Manner of assessment of State GST component built into IGST

All rights reserved | Preliminary & Tentative

All rights reserved | Preliminary & Tentative

ANNEXURE

All rights reserved | Preliminary & Tentative

THANK YOU

Goods and Service Tax (GST)

Industry Perspective
Dhiraj Bindal

GST EXPECTATION BACK THEN IN 2009

Simplification
Eliminate multiple Central, State and municipal taxes on goods with a single tax
Uniform tax rate across India
Distinction between goods and services will go Software, works contract
Classification controversies will go - Now, classification controversies are galore
since there are so many rates of duty
Concept of manufacture will go Packing, repacking, labelling etc
Business Impact
Eliminate cascading burden of taxes
Create a unified national market in absence of CST & Entry tax - Setting up of
manufacturing plant and warehouses will not be driven by tax consideration
Abolition of permits, way bills, check posts and toll plazas: Increasing productivity

GST EXPECTATION BACK THEN IN 2009

Procedural ease
Abolition form C, Form F, Form I
Tax administration
Invoicing will be simpler
Others
Refunds would be converted to upfront exemption
Lower cost of compliance

RECOMMENDATION TAX ON SUPPLY

Article 366 Definition (
both e cept.

A goods a d services ta

ea s any tax on supply of goods, or services or

Issues
The tax is proposed to be on supply of goods or services or both and it does not seem necessary
whether such supply should be between separate legal entity or for consideration. In such scenario,
there would be tax on
Stock transfer leading to huge cash flow impact
Supply of goods on demo, job works, testing etc
Supply of spares for warranty, Goods return
Valuation
Recommendation: The taxable event should be supply for consideration

RECOMMENDATION DEFINITION OF SERVICE

Article 366 of the Constitution:
6A ervices ea s a thi g other tha goods
Issues
The definition of service is very wide and could lead to vague interpretation
The transaction in immovable property could also be subject to GST (in addition to stamp duty as it
appears stamp duty will not be subsumed)
Any payment by way of discount, reimbursements, grants etc could be subject to GST wherein there
is no element of service
Recommendation: Goods & service should be comprehensively defined and clarification should be
issued whether software, works contract is considered as goods or service and consequent place of
provision

RECOMMENDATION 1% ADDITIONAL TAX

18. (1) An additional tax on supply of goods, not exceeding one per cent. in the course of inter-State
trade for a period of two years or such other period as the Goods and Services Tax Council may
recommend
(2) The net proceeds of additional tax on supply of goods in any financial year be deemed to have been
assigned to the States from where the supply originates.
Issues
1% non-vatable tax to be paid in origin state is a set back and will be akin to continuation of CST
Supply of goods on Stock transfer, demo, job works, testing etc will also be subject to 1% additional
non-recoverable tax and impact on P&L
Companies may want to have warehouse in all states to mitigate this 1% impact against the
concept of unified national market
Recommendation: To have this 1% incorporated in revenue neutral rate (RNR) and Government can
have backend calculation for making payment to originating & destination state. The trade should not
be impacted.

SUGGESTIONS
Time of 9 months for dealers to implement GST supply chain, pricing, contracts, IT etc
A clear guidance note may be issued with illustrations to determine place of supply of services to be
issued at earliest
There should not be any negative list of either goods or services restricting the availability of GST
credit
Continuance of tax benefits to SEZ, STP and EOU units
Single authority (State or Centre) for administration, assessment, enforcement, scrutiny and audit for
CGST, SGST & IGST.
Abolition of road permits, way bills and other statutory forms
Minimal instance of refund by providing upfront exemption or provision to be drafted in law for
giving automatic time bound refund
Transition process allow credit of VAT & Service Tax as well as CVD / ED built into GST opening stock
Uniform GST rate to be applied on goods and services
There should not be any domestic reverse charge taxes on goods and services