Gst impact study-icai

1. Opportunities
in GST –
Impact study
IndirectTax Committee
The Institute of Chartered Accountants of India
1www.idtc.icai.org

2. Webcast Coverage – 10th October -2016
. • GST Initiatives of IndirectTaxes Committee
. • Brief background of GST – 10m
. • Transitional Challenges -10m
. • Impact Simple Examples – 10m
• Analysis of Some Important Impact Areas – 50 + 25m
• In between - ERP Challenges – 15m
• Benefits of Impact Study – Client – 5m
• Question / Answer – 15 m
2
www.idtc.icai.org

3. GST Initiatives of Indirect Taxes
Committee
 Background Material on Model GST Law in July’ 16
 Suggestions on Model GST Law and draft GST Rules – submitted on 30th
Aug’16 & 28th/29th September 2016
 Presentations before CBEC & Empowered Committee of State Finance
Ministers – 10th ,18th & 30th Aug’ 16
 Identification and Training of new speakers on GST -
 FIP I - July/ Aug’ 16 – 133 selected
 FIP II – Sept’ 16 - 223 selected
 17 Study Groups created across the country
www.idtc.icai.org
3

4. GST Initiatives of Indirect Taxes
Committee
 Discussion Paper on Key Transitional Provisions under Proposed GST regime
– Jan’ 16
 Workshops, Seminars and Conferences: More than 100 workshops, seminars
and conferences on GST have been organised across the country.
• In addition to the above, ICAI is developing the following:
 Video recording on almost entire topics of Model GST Law
 Handbook on GST for Traders, Manufacturers & Service Providers
 FAQs on Model GST Law.
 Standardised PPT on Model GST Law
 Certificate Course on GST – after enactment of GST Law
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5. 1. Multiple taxes
lead to double
taxation &
cascading effect
2. Structure
involving multiple
taxes / rates not in
sync with global
practices 3. High cost of tax
compliance and
double taxation
leads to higher
prices of goods &
services
4. Lack of
uniformity in
provisions of
different law
and
interpretations
5. High cost of tax
collection leads to
lower tax yield to
the Government
Need for GST
5www.idtc.icai.org

6. Impact on Economy
GST - Impact on
Economy
Improve export
competitivenes
s
Boost FDI
investment in
India
Increase in
value of Indian
Rupee
Rate of 18%
for Mnf. &
traders could
reduce product
cost
Rate of 18%
equals present
15% rate
(goods credit)
Push GDP
growth by 1.5 –
2 %
6www.idtc.icai.org

7. Origin based tax to
destination based
tax
All stages of value
chain –
Primary/Secondary
/Tertiary including
retail
Taxable event is
‘supply’
Centre GST & State
GST to operate
concurrently
CGST & SGST on
intra state supplies
in India
IGST on inter state
supplies in India.
Exports – zero rated
Imports – [BCD +
IGST]
Key Features
7www.idtc.icai.org

8. Components
of
GST
Taxability
Supply
Place of
Supply
Registration
Time of
Supply
Valuation
Tax
Credits
Returns
Critical Components -Model GST Law
8www.idtc.icai.org

9. Transition to GST
1.Process re-
engineering & training
2. Review of present
credits, compliance
3. Carry forward of
CE/ST/VAT credits
4. Stock lying with
agents on transition-
impacts
6. Existing
registration-
migration to GST
8. Impact on
pending refund
claims- filed/unfiled
9. Continuing
contracts-
Revision, Spill over
to GST
4. Pending legal
cases
5. Unfinished
transactions
9www.idtc.icai.org

10. IT Systems
ERP Changes
Configuration & Customization
Forms & Challans
MIS & Reporting
Organizational Structure
Master Data
Transactional Data
Transitional Migration
Impact of GST on ERP
10www.idtc.icai.org

11. Creation & elimination
of accounting
transactions for
Deemed Supply
Transactional adjustment
for
Impact of tax on Advance
New transaction for
taxation of inter state
stock transfer
New format for
Bill of supply
Updation of
transactions in ERP for
mis-match identified
via GSTN
Transactional Impact on ERP
IT Systems
11www.idtc.icai.org

12. IT Systems
S No Area Current Scenario Proposed under GST Changes Required in ERP
1 Organization
Structure
changes
Currently the tax
structure are divided
into multiple taxes.
Single law with three taxes Changes will be required in tax
structure from multiple taxes to one tax
and corresponding different
components of taxes to be configured
for deducting, depositing, payment,
credit, interest and penalty.
2 Master Data
Management
Key masters hold
information required as
per current laws
Information at master level
to be maintained as per GST
requirements
Vendor master – GST registration
number of vendor location wise
Customer master – GST registration
number of customer location wise
Inventory master – For goods HSN
code and for services SAC codes
3 Transaction data Scenarios are based on
requirements of current
taxes, such as tax on
manufacturing, tax on
sale and tax on services
Proposed solution will
change to tax on supply
a. Changes in existing transaction
postings would be required.
b. Identification of redundant
transactions from old laws
c. Creation of new transaction
scenarios as per new law
4 Reporting &
MIS
Multiple reporting
formats for filing of
different taxes
One common reporting
format
Reporting formats to be changed as per
GST requirements and will remain
same across locations and organizations
5 Forms &
Challans
Different forms as per
old laws & locations
Common forms and challans
as per GST
Key forms such as tax invoice, bill of
supply to be redesigned. 12

13. IT Systems
S No Area Current Scenario Proposed under GST Changes Required in ERP
6 Configuration &
Customization
Not required As per new law
configurations &
customizations to be
changed
a. Updating ERP patch provided by
ERP companies
b. Configuring tax account mappings
as per GST requirements
c. Customization as per
requirements of business, e.g.
treatment of advance, deemed
supply etc.
7 Transitional
changes
Not required Credit from previous laws
may be allowed to be
carried forward to GST,
subject to conditions laid
down in transitional
provisions of GST law
Key decision points for migrations:
a. Close or Amend open PO’s on Cut-
Off date.
b. Close or Amend open Sales Orders
on Cut-Off date.
c. Forms & Templates, GST Ready:
• Sales invoice
• Sales order
• Purchase order
• Debit notes &
• Credit notes
• Temporary provisions:
• Returns of goods sold or
purchased before GST and
returned after Cut-Off
d. Stock in transit during cutover
activities, etc. 13www.idtc.icai.org

14. Illustrations - Manufacturer
Ex: 1 - When manufactured and sold locally
Pre-GST
Manufacturer Tax Type Rate Amount Tax Credit availment
On Manufacture Excise 12.50% 10,000 1,250 CVD, ST, ED credit
On Sale VAT 14.50% 11,250 1,631 VAT input credit
Total 27% 2,881
Particulars-(A) Cost Tax
Net Amt (Manf.) 10,000 0
Net Amt (Consumer) 11,250 1,631
Post-GST
Manufacturer Tax Type Rate Base Amt Tax Credit availment
On Manufacture CGST 9% 10,000 900 CGST & IGST credit
On Sale SGST 9% 10,000 900 SGST & IGST credit
Total 18.00% 1,800
Particulars-(B) Cost Tax
Net Amt (Manf.) 10,000 0
Net Amt (Consumer) 10,000 1,800
14www.idtc.icai.org

15. Illustrations - Manufacturer
Ex: 1 - When manufactured and sold
locally
Difference (A – B) Cost Tax
Manufacturer 0 0
Consumer
saves/(expenses) 1,250 (169)
Note:
1) Cascading impact in pre & post GST not factored.
2) Similar reduction at vendor end would go to reduce the base
amount, not factored.
15www.idtc.icai.org

16. Illustrations - Manufacturer
Ex: 2 - When manufactured and sold Inter-state
Pre-GST
Manufacturer Tax Type Rate Amount Tax Credit availment
On Manufacture Excise 12.50% 10,000 1,250 CVD, ST, ED credit
On Sale CST 2,00% 11,250 225 Cannot claim credit
Total 27% 1,475
Particulars-(A) Cost Tax
Net Amt (Manf.) 10,000 225
Net Amt (Consumer) 11,250 1,475
Post-GST
Manufacturer Tax Type Rate Base Amt Tax Credit availment
On Manufacture CGST 9% 10,000 900 CGST & IGST credit
On Sale IGST 9% 10,000 900 CGST, SGST & IGST credit
Total 18.00% 1,800
Particulars-(B) Cost Tax
Net Amt (Manf.) 10,000 0
Net Amt (Consumer) 10,000 1,800
16www.idtc.icai.org

17. Illustrations - Manufacturer
Ex: 2 - When manufactured and sold
Inter-state
Difference (A – B) Cost Tax
Manufacturer saves 0 225
Consumer
saves/(expenses) 1,250 (325)
Note:
1) Cascading impact in pre & post GST not factored.
2) Similar reduction at vendor end would go to reduce the base amount, not
factored.
3) Additionally in pre-GST limitation/refund ofVAT =Total ITC for product
less 2%.
17www.idtc.icai.org

18. Illustrations - Trader
Ex: 3 - When Traded Inter-state
Pre-GST
Trader ( Mumbai) Tax Type Rate Amount Tax
Purchase from Nagpur VAT 14.50% 11,250 1,631 Cost Includes ED
Sale to Chennai:-
To Trader (Incl. profit-1000) CST 2.00% 12,250 245
To Consumer (Incl. profit-1000) CST 14.50% 12,250 1,776
Particulars-(A) Cost Tax
Net Amt (Trader) 11,250 245
Net Amt (Consumer) 12,250 1,776
Post-GST
Trader (Mumbai) Tax Type Rate Base Amt Tax
Purchase from Nagpur C&S GST 18.00% 10,000 1,800
Sale to Chennai IGST 18,00% 11,000 1,980
Particulars-(B) Cost Tax
Net Amt (Trader) 10,000 0
Net Amt (Consumer) 11,000 1,980
18www.idtc.icai.org

19. Illustrations - Trader
Ex: 3 - When Traded Inter-state
Difference (A – B) Cost Tax
Manufacturer saves 1,250 245
Consumer
saves/(expenses) 1,250 (204)
Note:
1) Cascading impact in pre & post GST not factored.
2) Similar reduction at vendor end would go to reduce the base amount, not
factored.
19www.idtc.icai.org

20. Illustrations - Trader
Ex: 4 - WhenTraded Intra-state
Pre-GST
Trader ( Mumbai) TaxType Rate Amount Tax
Purchase from Nagpur VAT 14.50% 11,250 1,631 Cost Includes ED
Sale to Pune:-
ToTrader (Incl. profit-1000) VAT 14.50% 12,250 1,776
To Consumer (Incl. profit-1000) VAT 14.50% 12,250 1,776
Particulars-(A) Cost Tax
Net Amt (Trader) 11,250 0
Net Amt (Consumer) 12,250 1,776
Post-GST
Trader (Mumbai) TaxType Rate Base Amt Tax
Purchase from Nagpur C&S GST 18.00% 10,000 1,800
Sale to Pune C&S GST 18,00% 11,000 1,980
Particulars-(B) Cost Tax
Net Amt (Trader) 10,000 0
Net Amt (Consumer) 11,000 1,980
20www.idtc.icai.org

21. Illustrations - Trader
Ex: 4 - WhenTraded Intra-state
Difference (A – B) Cost Tax
Manufacturer saves 1,250 0
Consumer saves/(expenses) 1,250 (204)
Note:
1) Cascading impact in pre & post GST not factored.
2) Similar reduction at vendor end would go to reduce the base amount, not
factored.
21www.idtc.icai.org

22. Impact areas
Unlearn –
Relearn
Concepts
Trader
Manufacturer
Service
Provider
NGO/Govt.
22www.idtc.icai.org

23. Impact areas
re-engineering needed?
Need to revisit
the processes
and procedures
being followed
presently
SOPs- to be
redesigned for key
business processes-
at plants and HO
level
Re-engineering
of process as
per tax
optimization
under GST
Staff training to
impart
knowledge of GST,
its impact & key
processes and
ways of doing the
work
23www.idtc.icai.org

24. Re-engineering benefits
Pro-activeness =
Efficient business
Cash flow surplus:
Credits claim
Issues are
addressed before
hand
Vendor classification
& discussion
Tax planning
between
IGST/CGST/SGST
Reduction in
penalty & litigation
Smooth
functionality
between processes
24www.idtc.icai.org

25. Impact areas- Levy
Total Tax -
Outgoing
Non -
recoverable
Recoverable
(Input)
1. Sales
team
2. Depot
in-charge
TRAINING
3. Accounts
team
25www.idtc.icai.org

26. Impact areas - Procurements
Procurement
source- to be
realigned?
Change in
EOQ levels,
lead times,
carrying
costs
Revision in
purchase
budgets
Revision in
product
costing
Alternative
source of
procurement
Vendor rating
– important
criterion
Procuring with
a type of GST
to avoid
accumulation
of credit
26www.idtc.icai.org

27. Impact areas – Credit c/f
Claim of
Credit
C/f
In GST
As per rules
(yet to be
notified)
Past credit
Only if eligible
in GST
Transition –
litigation?
Claim of credit
on stocks
27www.idtc.icai.org

28. Impact areas – Exemption
Claim of
Exemption
Trader
Service
Provider
Manufacturer
Works
Contractor
If trading in goods listed in the negative list, other than
any taxable ancillary services provided. SST or
composition scheme– no Interstate
Might be similar to Mega exemption notification
25/2012-ST
Supply to Job worker may be taxable under GST
Other exemptions may continue?
AsWCT is considered a service – Composition Scheme
not available. Exemptions is any awaited.
28www.idtc.icai.org

29. Impact areas – Composition
1.Turnover to
be less than 50
lakhs – 2%?
2. Composition
scheme for
traders only and
not for services
3. Works contract
-Service - No
composition
4. Vendors opting
for composition
in GST – shall
reduce
No ISS
No Credit
to Dealer
or receiver
29www.idtc.icai.org

30. Impact areas - Vendor Management
Review current vendors history to identify non-compliant vendors
GST Compliance rating to identify non-compliant vendors
Identify multiple new vendors, get revised quotes
Conducting vendor education programmes for unorganized vendors
Review price of all related party vendors to avoid disputes in transaction
value
Suggest vendors to follow similar exercise - better vendor relationships
30www.idtc.icai.org

31. Impact areas – Agreements
Spill over
contracts to be
reviewed
Tax planning &
legal intricacies
New projects-
regn needed.
Ex: Construction
industry. Paying
around 25% tax
presently, in GST 18%
31www.idtc.icai.org

32. Impact areas – Accounts
Records –
IGST/CGST/SGS
T based; Regular
recos
Returns – 37/
49 for a single
registration
Entry
Validation +
Periodic
verification –
reduction of
errors
Inward/Outward
Supplies + ISD
uploaded
32www.idtc.icai.org

33. Impact areas – Audit
AUDIT
Review present
compliance, book keeping,
procurement, contract, etc.
Continuous check –
Easy & accurate
compliance
33www.idtc.icai.org

34. Impact areas – SOP
SOP –
Indirect
taxes
Introduce
/update
SOP – Key
business
processes
Re-design at
all levels
SOP –
Vendor &
Procureme
nt
Tax & cost
planning
34www.idtc.icai.org

35. Impact areas – Disclosures
To
department -
bonafide
Financials –
Banks
(Increase in
WC) & Stat.
audit
Internal
documents –
PO, Supply
documents,
offers, etc.
To be explicit
In case of
doubt; Avoid
longer period
demand and
penalty due
to malafide
35www.idtc.icai.org

36. Mapping of Taxes
Finance
• Identify the configuration of procurement
taxes
• Identify configuration of output taxes
Transaction
• Identify the entire supply chain of various
transactions
• Prepare flow chart
36www.idtc.icai.org

37. Identify change
Identificatio
n of change
co-ordinates
Tax
incidence
Timing of
payment
of taxes
Value of
Supply
Rate of
taxes
Exemption
s
Credit
positions
37www.idtc.icai.org

38. Mapping of Cost
Discussion with the commercial team for various possibilities of
transaction structuring
Identification of comparative disadvantage points
Transaction wise GST Costs
GST cost for overall organization
38www.idtc.icai.org

39. Strategize to Optimize GST
Strateg
y
Registratio
n
Branches
Job work
Vendor
manageme
nt
Transactio
n
structuring
39www.idtc.icai.org

40. Implementation Assistance
Assess
complianc
e needs in
GST
Assess
training
needs
Prepare a
Manual
Training
&
Complianc
e
Assistance
40www.idtc.icai.org

41. GST value addition/Benefits
Early study =
↓ -ve Impact &
↑ +ve impact
Missed credits
To be availed and c/f
Reversed credits
Documentation and
accounting
Reconciliation
Financials & Returns
Credits in stocks
Appeals(credit) if not
cleared – Withdraw and c/f
41www.idtc.icai.org

42. GST value addition/Benefits
Take advantage of procurement
Avoid issues with vendor/customer post GST
Optimize the tax
Optimize the credit to vendor, self & customer
Make representations
Recruit/train officers well in advance/ out-source
42www.idtc.icai.org

43. Questions?
idtc@icai.in
Website: www.idtc.icai.org
Presented by:
CA Madhukar N Hiregange
CA Rohini Agarwal
CA Bhavesh Gupta 43www.idtc.icai.org