India GST- Overview, Challenges, Opportunities and Oracle Roadmap

Agenda

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GST-Journey and Background

Current State of Taxes

GST as a concept-An Illustration

GST- Future State

GST-Impact areas

Oracle Approach and Roadmap

Opportunities

Current State of Indirect Taxes

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Current State of Indirect Taxes -Pitfalls

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• While CENVAT (to some extent ) has resolved cascading effect on taxes• Currently Credit of Input VAT is available against Output VAT

• Currently Credit of Input excise/service tax is available for setoff against output liability of excise and vice versa

• Credit of VAT is not available against excise and vice versa• VAT is computed on a value which includes excise duty

• CENVAT credit is allowed only for excise duty paid on inputs and not on VAT paid on inputs raw material

Tax on Tax scenario is still prevalent

GST attempts to solve this issue in addition to other issues

GST- The Journey so far

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Understanding GST- What is GST

GST (Goods and services tax) is a value added tax, levied at all points in the supply chain with credit allowed for any tax paid on inputs acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner with

exemptions restricted to a minimum.

GST is a destination tax and not origin based (current state)GST structure would follow destination principle

It is a dual model to be administered by Central and State Governments

GST Concept

How GST works•GST that is charged by a business and paid by its customers is known as output GST (that is, GST on its output supplies)

•GST that is paid by a business to other businesses on the supplies that it receives is known as input GST (that is, GST on its input supplies)

•A business is generally able to recover input GST to the extent that the input GST is attributable to (that is, used to make) its taxable outputs

•Input GST is recovered by setting it against the output GST for which the business is required to account to the government, or, if there is an

excess, by claiming a repayment from the government

•Exempted goods and Services – Very few items with common list for CGST and SGST

•Goods and Services outside the purview of GST

•Alcohol for Human consumption - will continue with State Excise and VAT

•Electricity – will continue with Electricity Duty

•Petroleum Products – will continue with the current tax structure, likely to be brought under GST regime later

•Tobacco products expected to be taxed under the GST regime along with Excise duty

•Seamless input tax credit through out the value chain for B2B supplies

GST Illustration

Total Government

revenue

Raw-material supplier

Manufacturer / Service Provider

e.g. Keysight

Customer e.g. Sony Ericsson /

Vodafone

Final Consumers e.g. Mobile Users

Raw materials sold + Invoice for $100 + $10 GST

Finished Machine sold + Invoice for $250 + $25 GST

Mobile phones & connections sold + Invoice for $500 + $50 GST

$10 GST remitted

$15 GST remitted ($25 GST - $10 credit)

$25 GST remitted ($50 GST - $25 credit)

Payment - $110 Payment - $275

Payment -

$550Total GST collected as Govt.

revenue is $50. Whole of it is borne by “Final Consumer”, but recovered

from others in the supply chain

GST- a type of INDIRECT TAX

GST is a TRANSCTION TAX

GST Vs Current Tax Laws

Intra State Supply of Goods and Services

CGST-Central Tax

In place of current Central Taxes and levies

SGST – State Tax

In place of current State Taxes

CGST and SGST at applicable rates would be levied on the same Taxable basis with no tax on tax computation

Intra State Supply of Goods and Services

Inter State Supply of Goods and Services (Including Inter state Stock Transfers)

Proposed GST structure

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IGST-Central Tax • In place of current Central Taxes and State Taxes

(consuming state to get a share of revenue from IGST)

• Additional State Tax not exceeding 1% Non recoverable tax for supply of Goods – revenue for the selling State

Import of Goods and Services to India • No impact on Customs duties other than CVD and

SAD • IGST in place of CVD and SAD • Exports of Goods and Services from India/Deemed

Exports •IGST @ 0% with input tax credit

Current State of Indirect Taxes and GST coverage

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Taxes expected to be subsumed under GST

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GST- Scenario 1-Sale within state

In the example illustrated below, goods are moving from Mumbai to Pune. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government as pointed out in the diagram. Then the goods are resold from Pune to Nagpur. This is again a sale within a state, so CGST and SGST will be levied. Sale price is increased so tax liability will also increase. In the case of resale, the credit of input CGST and input SGST (Rs. 8) is claimed as shown; and the remaining taxes go to the respective governments.

GST- Scenario 2-Sale within one state and Resale in another stateIn this case, goods are moving from Indore to Bhopal. Since it is a sale within a state, CGST and SGST will be levied. The collection goes to the Central Government and the State Government as pointed out in the diagram. Later the goods are resold from Bhopal to Lucknow (outside the state). Therefore, IGST will be levied. Whole IGST goes to the central government.

Against IGST, both the input taxes are taken as credit. But we see that SGST never went to the central government, still the credit is claimed. This is the crux of GST. Since this amounts to a loss to the Central Government, the state government compensates the central government by transferring the credit to the central government.

GST- Scenario 3-Sale outside the state and Resale within stateIn this case, goods are moving from Delhi to Jaipur. Since it is an interstate sale, IGST will be levied. The collection goes to the Central Government. Later the goods are resold from Jaipur to Jodhpur (within the state). Therefore, CGST and SGST will be levied.

Against CGST and SGST, 50% of the IGST, that is Rs. 8 is taken as a credit. But we see that IGST never went to the state government, still the credit is claimed against SGST. Since this amounts to a loss to the State Government, the Central government compensates the State government by transferring the credit to the State government.

GST- Bodies

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Goods and service tax council (GSTC)Responsible for recommendations on

GST rates, Band of GST rates, GST Law and procedure, GST exemptions and thresholds,

modalities for dispute resolution etc

Multiple Statutes –One for Central Government and one for Every State Government •Model GST Law consists of Rules and Procedures to be recommended by the GST Council –Model law is expected to be available in the public domain soon –Some of the State administered GST requirements are expected to be common between statutes where as some requirements could vary from state to state to allow flexibility to the Center and State Governments –Common law across India for Central GST (CGST and IGST) –Place of supply Rules to determine whether the supply is intra state or inter state •Initial draft of the Place of supply Rules published

Goods and Service Tax Network (GSTN)GSTN is responsible for building and maintaining the IT systems

required for GST administration by building a common portal, act as the national agency responsible for delivering integrated tax related

services–Functions includes processing the applications for GST registrations,

facilitating e-payments and filing of returns, input tax credit, Tax settlement, manage back end modules to enable tax authorities to

perform tax assessment, refunds, audits etc.

Tax Registration and Jurisdiction

India GST expectations-Input Tax Credit

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• Input Tax Credit on IGST allowed for payment of IGST, CGST and SGST in that order

• Input Tax Credit on CGST allowed for payment of CGST and IGST in that order

• Input Tax Credit on SGST allowed for payment of SGST and IGST in that order

• No cross utilization of input tax credit between CGST and SGST

• No input tax credit for Additional tax

• Input tax credit will be allowed only based on supplier invoices uploaded to GSTN for the supply

• Electronic Upload of invoices/relevant supply documents will be mandatory under GST

• Data download, verification and validation and upload of input tax credit data for effective management of

input tax credit

• Recovery management procedure spans to multiple periods

India GST expectations-Tax Settlement Reporting and Expectations

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• Recommends 8 reports – GSTR1 – GSTR8; makes their recommendations on reporting process and reporting time to be managed by GSTN through the

common GST portal

• GSTN to validate accurate tax settlement and utilization of input tax credit

• One Tax settlement for all business units sharing the same GST registration

• Tax liability under different categories to be computed separately as different line items in one Challan (Payment document)

• Option for payment through internet banking or conventional payment at specified banks

• GSTN will track the receipt of payment and issues acknowledgement

• Infrastructure for Electronic Data exchange

• Issue of supply of goods and services for a tax period (Outward) : Mandatory

• Electronic reporting of all transactions relevant under GST including debit/credit notes, supplementary invoices etc

• Electronic data exchange/reporting infrastructure for verification and validation of input tax credit

• Includes download of purchase records from GSTN, Matching and confirmation, and submission of omissions if any

• Tax reporting through Electronic Media

• Periodic tax returns through electronic reporting with a defined process for reporting and reporting timelines

GST Transtiton- Impact

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Business and IT

Impact areas- ITImpact areas- Business• GST Jurisdiction and Organization Structure• Master Data Management- Vendor and sites• HSN Codes• EDI/Electronic Data Interchange• Invoice Uploads to GST Portal /GSTN• Tax configuration and Tax Transactions• Matching, Settlement and Reporting• Reconciliation• Register and Current Reports

Impact areas- Business Processes

Oracle Solution Approach and Readiness (Oracle financials for India based)

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Re-engineered the EBS Oracle Financials for India (India Localization) solution Major changes on system configuration making the solution much more scalable to address complex tax requirements Unified procedure for “Regime to Rate” Configuration Option for user to configure Tax type, Tax behavior, Taxable event and Tax document sequencing Option for defining tax jurisdiction based on the registration number Improved features for input tax credit management (multi phase recovery process) and tax settlement/Tax offsets Unified Tax repository with traceability to every tax transaction Improved user experience The new solution scalable to map the basic solution infrastructure for GST as well as the existing tax regimes; any gaps to

enable compliance on Proposed GST regime will be built only on top of the new solution. E.g. Infrastructure for Electronic data exchange. The new solution will be released as a part of GST release on all supported versions under Premier Support.

With the improved solution infrastructure OFI development team is well equipped to release solutions to enable compliance to GST quickly once Government notifies the requirements and based on final go live mandate

The new solution under advanced stage of Development Evaluating the feasibility of EAP engagement prior to final release with customers which will provide insights to customers

on the new architecture Release plans depended on Government finalizing the GST go live plans To be decided and communicated later

Configuration process flow

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Opportunities

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Thank You

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