All rights reserved | Preliminary & Tentative GOODS AND SERVICE TAX IN INDIA OVERVIEW | IMPLEMENTATION CHALLENGES Rajeev Dimri | Partner

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GOODS AND SERVICE TAX IN INDIAOVERVIEW | IMPLEMENTATION CHALLENGES

Rajeev Dimri | Partner

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GST – Why so much noise…

GST: IMPLEMENTATION CHALLENGES3 |

• Most significant indirect tax reform in Indian history

• Will impact each commercial / business activity

• Stakeholders - Government, business community as well as common man

• Tax administration system will undergo significant functional change

• Will make indirect tax environment more simple, stable and predictable (hopefully!)

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Excise Duties including the additional excise duties

Cesses in the nature of excise duty /customs duty

Additional duties of customs (ie CVD and ACD)

CST to be abolished

Service tax

Cesses and surcharges levied by Union ie education

cess etc

VAT/ Sales tax

Entry tax not in lieu of octroi

Entertainment tax (unless levied by the local bodies)

Luxury tax

Taxes on lottery, betting and gambling

Cesses and surcharges levied by States, related to

supply of goods and services

Central Levies State Levies

Subsumation of taxes

Central GST State GST

Purchase tax to be subsumed

• Municipal levies - likely to be out

• Stamp duty - likely to be out

Taxes to be subsumed under GST

GST: IMPLEMENTATION CHALLENGES

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Overview of the new landscape

Taxable event to be ‘supply’

States to levy tax on services

Taxable event

Tax rates to change for inputs and outputs

Initially 1% additional tax on inter-state sales

Place of supply Exemptions

Likely to either be withdrawn or be converted into refund mechanism

Multiplicity of taxes

Possible expansion of credit base

Credit pool to be maintained for each state

Credit

GST to subsume most current indirect taxes

To be replaced by CGST and SGST, IGST and additional tax on inter-state supply

Destination based tax

Rules for services?

Rates

Likely to be consistent for all goods and services – MRP valuation may go

Classification

Valuation

KEY GST CONCEPTS

GST: IMPLEMENTATION CHALLENGES6 |

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GST – KEY IMPLEMENATION CHALLENGES

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6 |

Paradigm shift

Supply based taxation

Taxability of inter-unit transfers

Job-work / tolling

arrangements

Determining consumption

state

Determining origin state (to levy additional

tax)

Taxing jurisdiction in case of chain transactions

Taxation of imports


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7 |

Crafting a workable design

Need for a pragmatic and business friendly approach

Place of supply rules – special focus needed for service sector


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Crafting a workable design

Need for a pragmatic and business friendly approach

Characterization of borderline transactions (eg works contracts, intangibles, lease, software)

Special regimes – SEZ, EOU’s, Area based exemptions Synchronization with foreign trade benefitsNeed for simplified taxation structures for very small & large tax payersTaxation of key strategic / evolving sectors – eg real estate, ecommerce, telecom


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Difference in SGST rates – likely challenges


SGST rate

Jurisdiction disputes

Customer state wise SGST rates for billing

purposes

Tax driven supply chain planning to

continue

May impact port of import decisions

Multitude of audits, investigations

Distortion of trade

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Transitional challenges


Phased transition• Some products / sectors (petroleum, liquor) may be kept outside to begin

with

Fate of investment linked incentives• Whether the investment linked indirect tax benefits presently extended by

several states would be continued under the proposed GST regime?

Transition of opening credits• Tax credits pertaining to the present indirect tax regime will require

seamless transition

Additional tax• Credit eligibility• Applicability on imports

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Admin and infrastructural preparedness


Personnel

• Training needs

• Defining procedures and processes

Systems

• Alignment with the new levy

• Proper upkeep and maintenance

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Likely challenges to enforcement agencies

Key challenges

Managing risk of GST

fraud

Training needs

Robust GSTN and online

compliances

Coordination between state & central

departments

Taxation of services by

States

Role of customs

authorities


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Likely challenges for tax payers


A new tax law – a whole lot of tax controversies

Transaction restructuring

Transaction structuring to be reviewed

Procurement pattern and trading models to be analysed – No significant difference between local and interstate under GST?

Billing patterns, local vis-à-vis inter state to be reviewed

Records/ Accounting

State-wise sales records

Credit availment and utilization records

Transition

Transition of credits

New registrations

Change in contract clauses

Review of procurement costs

Taxability of transactions spread across regimes

Treatment of tax paid inventory

Re-designing of the entire ERP

Current ERP is aligned as per the current taxes

Change in accounting

Re-defining the logics

Updating masters

Overall pricing of goods – factoring of GST credits

Change in rate of taxes

Costing / Pricing of goods

Compliance

Tax computations

New formats for invoices / records/ returns/ declarations

Validity of statutory form (Form F/Form C)

Manner of payment of taxes

New compliance dates

Documentation for movement of goods13 |

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BMR’s take

13 |

With current level of preparedness April’16 timeline looks a daunting task

However, with increasing global focus on India as investment base market, no room for postponing this critical indirect tax reform

A well planned and coordinated approach between policy makers, enforcement agencies and industry critical to achieve the timeline

Urgent need to roll out high-level design of the new law for deliberations by stakeholders

GST the need of the hour to combat the globally so perceived ‘tax terrorism’ in India!


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Disclaimer

OVERVIEW & IMPLEMENTATION OF GST

Purpose of this presentation is to give a highlights of the proposed GST regime in India and not render any definitive

opinion on any of the activities of stakeholders under the GST regime

Prior professional advise is advised before implementation of aspects covered under this presentation

Our comments in the preceding slides are based on the GST framework outlined in the First Discussion Paper on

GST (2009) and the Constitution Amendment Bill, 2014

Some of the features highlighted including the IGST model for interstate supplies are understood to be under

reconsideration

It is likely that the final model would differ from our understanding and the implications discussed herein

would accordingly vary and the contents of this presentation would need to be updated basis the revised

GST frame-work in the offing

BMR is under no obligation to update this presentation for future changes

Documents

All rights reserved | Preliminary & Tentative GOODS AND SERVICE TAX IN INDIA OVERVIEW | IMPLEMENTATION CHALLENGES Rajeev Dimri | Partner