Presentation on GST at CREDAI Conclave 2015

1© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

GST - Preparing for the Transition

CREDAI16 December, 2015

2© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Table of contents

Progress so far

Proposed Framework

Snapshot on Reports Issued on GST Business Processes

01 02 03 04

Potential Impact

05

Next Steps

06

Key Aspects of Draft GST Law


Progress so far

Drafting of GST Law

Constitution Amendment Bill

Progress on IT infrastructure

Drafting of GST Law

Constitution Amendment

Bill

• Passed by Lower House of Parliament, pending before Upper House

• Convergence of views on disputed issues between ruling and opposition parties

• Bill expected to be taken up and passed in ongoing Winter Session of Parliament

• GST Network (GSTN) formed, responsible for IT readiness before GST

• Funds allocated to State Governments for IT up-gradation• Large Indian IT Company selected for GST portal

implementation; expected completion date – 31 March 2015

• Model GST legislation drafted and shared by Central Government with States

• First cut of Draft law available in public domain• Four official draft documents on registration, payment, refund

and return process released in October 2015


Proposed Framework


Proposed structure

Framework Coverage Rates

Dual GST for Centre and States, IGST on inter-state transactions

Additional 1% tax proposed on inter-state supplies of goods?

Place of Supply Rules for determining ‘situs’ of services and goods

Excise duties/ Service tax/ CVD/ SAD

VAT/ Entry tax/ Octroi/ Purchase tax/ Entertainment tax/ Luxury tax

Cesses & Surcharges on goods & services supply

Varying rates proposed, no final consensus yet

Indications of multiple slabs with rates less than 20%

Free credit flow - No cross credit between CGST & SGST;

Order of utilisation of IGST

1 2 3

Petroleum products, alcohol, electricity likely to be kept outside GST


IGST model – Levy and Credit#

State A State B

Output IGST 25

Less:

Input IGST 10

Input CGST 05

Input SGST 05

Net IGST payable by D1

05

Inter-state purchase - 50IGST @ 20%10

D1

Local purchase - 50CGST @ 10% = 5SGST@ 10% = 5

Input credits D2

IGST (CGST + SGST) 25

Customer

Local sale - 140CGST 14SGST 14

CGST SGST

Output GST 14 14

Less: Input IGST 14

Input IGST 11

Net SGST payable by D2 03

Ord

er of u

tilization

Order of utilization

Inter-state sale/ stock transfer - 125

# Without considering 1% additional tax


Multiple Rate structure – No final consensus yet

Rates proposed by NIPFP to sub committee ― 16 different rates scenarios, including a two rate GST, three rate GST and four rate GST

― Rates of 14%, 16%, 20%, 24%, 27% suggested in the report

Chief Economic Adviser led panels’ recommendation

― Revenue neutral rate of 15%-15.5%

― Standard rate of 17% to 19%, with a lower rate of 12% for essential goods and higher (demerit) rate of 40% for luxury cars, tobacco products

― Removal of 1% additional tax

Rate unlikely to be made public before a date near to implementation & Socio-political consideration expected to be key driver


Snapshot of Joint Committee Reports on GST Business Processes


Background

Joint Committee formed under the co-convenership of the Additional Secretary (Revenue), Government of India and Member Secretary, Empowered Committee has released four reports on business process under GST

GST registration – This report covers the situations wherein supplier of goods and services would be required to obtain registration. Further, the report also covers process for obtaining registration in different scenarios

A

GST refund – This report covers situations which would entitle the taxpayers for refund along with the process to be followed for obtaining the refund from tax authorities

B

GST return – This report covers various types of returns and periodicity of filing each returnC

GST payment – This report sets out the mechanism for payment of liability under GST regime along with time lines for making the payment

D


GST return – Classic reconciliation problem (Illustration)

GSTN

30th January – Sale Invoice

10th February -Upload

12th February –Purchase Report Transaction reflected

Internal reconciliation for January – Purchase not reflected in ERP

14th February

16th February –Delivery

Internal reconciliation for February –Additional purchase item in ERP

1st March

Seller Buyer

1

2

3

4

5

6


GST return – Key aspects

Multiple returns/ reporting requirements – Significant increase in compliances

Reconciliation requirements – Need for robust IT systems, vendor education, appropriate modifications in contract terms, etc.

No option to revise returns

Input tax credit available from date of application - No Input Tax credit in respect of goods and services procured pre-registration?


Key aspects of draft GST law


Draft GST law – Key aspects

Place of supply of services - Supply to Registered person – Location of SR

Supply to Unregistered person – Location of SP

Services in relation to Immovable property – Location of Immovable property

Barter, exchange, stock transfers, services within entity (self service) subject to GST

1% composition scheme (no ITC) – threshold 50 lakhs

Transaction based valuation (like value or computed value in other cases), Free of cost supplies subject to GST

Place of supply of goods – linked to delivery


Draft GST law – Key aspects (Cont’d..)

Time of supply of goods – earliest of date of removal, invoice, payment, date on which the receipt of goods are shown in books of accounts

Time of supply of services – contingent of timely issue of invoice & payment or receipts shown in books

Place of supply of goods – Linked to delivery

Liberal credit provisions – ‘Attributable to the purposes of business’, no time limit prescribed

Order of utilization of credit prescribed

Restrictions of credit motor vehicles, HSD, personal use, works contract of building etc.


Potential Impact


Current Tax Regime & GST Impact – Sale of Built-up Area

Outside India India

Developer

State A State B

Vendor

BCD - CostImport GST

Import of goodsCustoms duty - Cost

1

Local purchasesExcise Duty - Cost VAT

Local Supplier

GST

4

Inter-state purchasesExcise duty, CST -Cost

Inter-StateSupplier

IGST & Additional 1%

Tax

3

ServicesService Tax

Service provider

6 GST

Customer

Sale of Flats*Service tax

VAT7

Works contractVATService tax

Contractor

5

GST

Transfer of development rights/ Long term leasing of

landService Tax?

Land Owner

2

GST?

GST

* Payment of service tax at the abated value of 25%/ 30%


Current Tax Regime & GST Impact – Manufacturing

Outside India India

Services- Architect, Brokerage etc

Service Tax

Local purchasesExcise dutyVAT - Cost

Renting of immovable property

Service Tax

Inter-state purchasesExcise dutyCST - Cost

State A State B

Service provider

Inter-StateSupplier Local Supplier

Customer

GST

IGST & Additional 1% Tax

GST

Vendor

BCD - CostImport GST

Import of goods Customs duty - Cost 1

2

3

4

6Developer

Current Tax Regime & GST Impact – Renting of immovable property

Works contractVAT, Service tax-

Cost

Contractor

GST –Cost??

GST

5


Change in tax rates

Present Under GST*

Inputs – Cement Excise – 12.5% + Per MT

levy

VAT – 12.5% - 14%

~ 12% to 20%

Services

* Without factoring 1% additional tax on Inter-State supplies of goods

14.5% ~ 16% to 18%?

Inputs – Iron & Steel

Excise – 12.5%VAT – 4% ~ 12% to 20%


Civil Work: Savings to Contractor

2

1

ContractorInter- state purchases

Savings in tax cost - Room for re-negotiation of Contract value

State AState B

Local procurements

Particulars Current GST

Purchase 50 50

Excise Duty [email protected]%/GST @22%

7.03 11

Less: Credit 0 -11

Total Tax Cost 13.28 0.00

Particulars Current GST

Purchase 50 50

Excise Duty 6.25CST @ 2%/GST @22%+1%

1.13 11.5

Less: Credit 0 -11

Total Tax Cost 7.38 0.50

Developer

Works contractVAT 4%

3

Contractor paying VAT under composition scheme


Sale of Built-up Area – Output TaxCurrent Regime GST Regime??

Rate Amount Rate Amount

BSP Exclusive of Tax 100 100

Service tax 4.35% 4.35VAT 1% 1GST 18%/ 12%?? 18/ 12

BSP Inclusive of Tax 105.35 118/ 112

Total Output Tax 5.35 18/ 12??

Standard GST Scheme - Need for concessional GST Rate with abatement (on account of land) and liberal credit regime

Revision of BSP in view of availability of credit of tax paid on goods?

Composition GST Scheme – Rate and Impact of Input GST needs to be assessed

1

2

3


Other Issues

Taxability of Barter Transactions – JDA with built-up area sharing

Taxability of JDA – Cash flow impact

Taxability of long term leasing – Cash flow impact

Exclusion of land – Need for reversal of credit??

Taxability of statutory levies such as EDC/ IDC

Credit regime for Renting Operations


Multifold impact of GST

Cash Flows

Fiscal

Business Processes

Accounting

IT systems


Transitional Impact

Transfer of unutilized

credits and treatment of transitional

stock

Treatment of on-going/ existing

contracts

Vendor / Customer –

Price renegotiation


Impact assessment: IT System

ERP Version

ERP Tax Procedure

ERP Business scenarios

ERP Indirect tax mapping

Master Data readiness

Statutory compliance

1. ERP version checkDetermine if current ERP version is compatible with GST

2. Tax procedure assessmentAssessment of appropriate Tax procedure to support GST

3. Business scenario coverageDetermine if relevant business scenarios are mapped in the system for broad GST coverage

4. Country India solutionCheck system configuration for relevant business scenarios

5. Master data assessmentMaster data readiness for smooth GST transition

6. Statutory reporting complianceSystem readiness for Pre-GST audit

It is necessary for companies to review their IT systems to assess their technical and process readiness

With the impending GST regime, it is imperative for organizations to assess their current state of the ERP system to help ensure that it is ready for GST.


Preparing for GST – Best Practices


Next Steps..

Set-up a core GST Committee – having representatives from Finance, Projects, IT and Marketing teams

1

Impact assessment

• Fiscal

• IT

• Projects

• Contract2

Advocacy – Preparation of detail paper covering

all tax issues2A

Drawing up a detailed implementation plan

2B

Create awareness

across business functions


Thank youContact:[email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative(“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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Presentation on GST at CREDAI Conclave 2015