G.u.i.d.e to GST Compliance for

Dealer Management SystemsImpacts Challenges Solutions ScheduleIntroduction

Greetings!

Purpose of this presentation is to give highlights of the potential impacts on the proposed GST regime in India pertaining to Dealer Management System (DMS) along with probable solutions towards GST Compliance preparations. Information is based on MGL, interaction with professionals, consultants and of course internet.

Corporate need to adopt a proactive approach in understanding the GST impacts on their IT systems well before the GST Bill becomes a law. Amendments to the Bill are always on the cards, which again could have a cascading impacts.

The presentation is not to render any definitive opinion on any of the activities of stakeholders under the GST regime. It is hereby presumed that the reader has guidance / advise from Professionals before implementation of aspects covered under this presentation.

Kindly treat it as a Guide and not as the Guard!

Yours,Gans(Ganapathy Subramaniam T.K.)

PS: Guide – Gans Useful Ideas on Delivery Excellence.

Disclaimer

3G.U.I.D.E

GST – An Overview• GST stands for Goods & Service Tax. GST is an indirect Tax which the Government of India is planning to

levy on Goods and Services. There are exemptions in the Model GST Law (MGL).

• Once implemented, major indirect taxes would get subsume in GST. Central Taxes like Excise Duty, various Cesses, etc and State Taxes like VAT, Entry Tax, etc will gets subsumed.

• GST is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture, distribution and up to final consumption with credit of taxes paid at previous stages available as set-off against taxes payable on output. That means, only value addition will be taxed and burden of tax is to be borne by the final consumer

• While National GST has been practiced in other countries, India will follow Dual GST model – i.e. state and central government will both levy GST termed as SGST and CGST. This is applicable for supply of goods within the state. Hence, tax accounts for State and Central to be separately maintained.

• Integrated GST (IGST) to be levied for inter-state supply. IGST is the sum of CGST and SGST

• Taxable Event : “Supply of Goods or Service for Consideration”

4G.U.I.D.E

GST – An Overview• The magnitude on the “Supply of Service for consideration” has varied interpretation & impacts; hence, to be

analysed in depth. The following example is worth reading & understanding:

• Suppose, if you want to offer Rs.10,000/- to a place of worship, it can be done in several ways. While it is a debatable one whether these offerings are taxable, let us forget for a while and consider the cases 1 by 1

# Action Event Remarks

1 Offerings in Hundi Non Taxable

2 Donated via Cheque or Electronic Mode Non Taxable

3 Illuminating / Lighting the Premises by Cash or Kind Non Taxable

4 Writing / Sticking your Name on the light Taxable Because of brand promotion / marketing / sponsorship, etc, it is treated as ‘consideration’

• Trade Promotions / Merchandise Display can be under GST due to Supply of Service for Consideration.

• One of my friend told me that huge amount of tax can be collected if Bribery is made taxable. In fact, Bribery is a practical example of “Service for (Special) Consideration” but it is outside the scope.

• The scope of this presentation is restricted to Supply of Goods for consideration

5G.U.I.D.E

GST – An Overview• Products will be identified by Harmonized System of Nomenclature (HSN). HSN is a standard code practiced

across countries.

• Government of India has published standard coding convention for the list of States and Union Territories

• GST Network (GSTN) is a single window system to file the Tax Returns for both State & Central Departments

• Registration to GST Network system with PAN linked GST Identification Number (GSTIN). GSTIN is a 15 digit code with the combination of State Code + PAN + Series + Z + Checksum

Take-Aways

• Dual GST – For every intra-state transaction on Supply of Goods for consideration, both the taxes (CGST & SGST) to be levied concurrently and submitted to Central and State Govt. respectively. This is a change from the current practice of applying only VAT and respective State levies.

• For Inter-State Transactions, IGST to be charged and submitted to Central Govt. – which is similar to CST.

• GSTIN & HSN to be used in all transactions pertaining to Supply of Goods

6G.U.I.D.E

Transaction Type

Tax Component

Description To be Levied by

Tax Credit Utilization

Conditions to Claim Credit

Timelines *

Intra-State Transactions(Within State)

CGST Central Goods & Service Tax[This will subsume Excise Duty, Additional Excise Duty, Service Tax, CVD, SAD, Surcharge]

Central Govt.

Inputs can be utilized against output CGST / IGST

Possession of Tax Invoice

Within 1 Year from date of Invoice

SGST State Goods & Service Tax[VAT, Entertainment tax levied by states, Luxury Tax, Tax on Lottery, Entry tax other than for local bodies]

State Govt.

Inputs can be utilized against output SGST / IGST

Receipt of Goods / Service

Filing of ReturnOrSep of subseq. Financial year

Inter-State Transactions(Outside State)

IGST Integrated Goods & Service TaxApplies to Inter-State Transactions (including transfer of Stock)

Central Govt.

Inputs can be utilized against output IGST / CGST / SGST

Tax charged on the Invoice by Supplier

Addl. Tax Provision for Future

GST – Tax Components

• Credit rules probably the most controversial change suggested by the MGL. Might impact cash flow / margins.• Matching the claimed credits with the vendor tax liability through GST Network. In case of difference / discrepancy, excess

credits will be disallowed to the recipient.• Changing the Financial Year (Jan to Dec) is being discussed. This might have an impact on revisiting the Returns filing.• * Kindly refer to MGL for details

7G.U.I.D.E

GST – Quick Summary

Registration to GST Network (GSTN) system for PAN linked GST Identification Number (GSTIN)GSTN

Registration

Registered users (VAT / Service Tax) will be migrated to GSTN

Input Tax Credit during VAT / Service Tax will be migrated to GST digital ledger (Conditions Apply)

Common Returns for both Central & State Government departments [GSTR-1 to 8]

Allows tax credit at intermediate level of invoices raised between vendor & supplier

Filing of Returns

Dual Levy imposed concurrently by Central & State Governments

Consumption based and not on Production Or Gross Income Based

Tax Reform

Product classification using Harmonized System of Nomenclature (HSN)

Common lists of exempted Products for State & Centre. Flexibility for States for deviation

Product

Area based exemption has been removed Common Tax Base for State & Centre Tax norm defined for both Inter-State & Intra-

State supplies

Area of Coverage

Transition

8G.U.I.D.E

GST – Getting Ready• Initial date for GST rollout was 01-Apr-2017. With the delays in reaching out the consensus in GST council

meetings and Winter Session disruptions, the target date has been revised to 01-July-2017.

• While majority of the group thinking that the GST is just a Tax % change, whereas matured groups have started analysing the impact and geared up their IT systems for making changes to become GST compliant.

• GST is not just a tax reform. It’s actually a business reform which will have affect areas like supply chain, logistics, distribution model, pricing structure and IT Systems

• The magnitude of impact is such a high that the Revenue Secretary Hasmukh Adhia and economic adviser Arvind Subramanian said no country has claimed a flawless GST since inception, and further and better change in complex systems is incremental.

• As mentioned earlier that the implementation of GST is not just a change in taxation or will not only impact supply chain, logistics, distribution and manufacturing but also has a wider implication on IT as ERP systems which will need changes in the form of customization, configuration and Testing.

• While designing the configuration / customisation changes, due consideration should be given, such that the system is not only GST ready, but is also scalable & adaptable to future changes pertaining to the Statutory requirements

9G.U.I.D.E

GST Impact on DMS

10G.U.I.D.E

GST Impact on DMS – Functional / Business Process• Analyse the scenarios of GST impact on to Supply of Goods & Services. Remember that the tax base has

been expanded – hence, it is important to analyse, ascertain and apply business rules change.• Refining or Redefining the impact of Indirect Taxes pertaining to Business Processes

• Inter-State & Intra-State Transactions (Purchases, Sales)• Stock Transfers• Back-dated Billing (subject to availability of this feature in the IT system)

• Revisiting the Tax Definitions, Type of Taxes, Rate Configurations, Taxable Events & Computations

• Product Vs Tax Mapping

• Supply from/to registered / Un-registered / Exempted entities, Out of Scope Items, Zero Rated Items

• Financial Aspects : Reverse Charge Mechanism, Threshold Limits, Advance Payments, Post Invoice Discount

• Tax Repository, Tax Traceability at every transactional level

• Tax Utilization, Returns Filing

11G.U.I.D.E

GST Impact on DMS IT Landscape

High Impact Potential Impact (Subject to Business Process)

GST compliance will have direct impact on the following:• Master Data, Data Structures• Business Application & Associated

interfaces viz. • ERP & Business Application• Bus. Appln & Accounting Systems

• Data capturing, transfer & retrieval• Business Rules / Logic change• Transactions & Amendments (Sales,

Purchase, Claims, etc)• Report Formats / Printing Formats• Account Postings• Data Upload / Download for Tax

Returns filing• Test Build for Cut-Over, Piloting• Strategic solutions for Change-Over

Primary Systems

Secondary Systems

12G.U.I.D.E

GST Impact on DMS – Governance• Verification & Validation Procedures• GSTN Registration• Tax Verification & Validations

• Tax Rates • Tax Computations• No Input Tax Credit for Additional Taxes• Verifying the behaviour of Amendment of Invoices pertaining to VAT regime

• Generation of Tax Return filing forms (GSTR-1 to 8) in line with GST• Reporting of all transactions relevant under GST in electronic format

• Purchase, Sales• Debit / Credit Notes• Supplementary Invoices

• To support Excise / VAT for out of scope GST items

• Migration of Input Tax Credit• Data Download / Upload, Input Tax Credits

13G.U.I.D.E

GST Impact on DMS – Operational• Need to work out Cut-Over strategy based on the type of internal systems

• Cloud based Systems – Single instance for multiple corporate• Online based Systems – Separate instance for each corporate• Client / Server based Systems – Installation / Patch required at every distributor site

• GST Regime Preparation Activities• Tax Definitions, Rates• Products Vs Tax Mapping• State Codes

• Data Migration Strategy• Open Transactions • Stock in Transit• Goods received but invoice not raised • Orders booked but not converted to invoice

• Financial Benefits / Constraints to distributors due to difference in price between VAT & GST tax regime / rates

• Process for tax utilization at the end of the month will help the business

14G.U.I.D.E

GST – IT Systems Implementation DependenciesIt is important to identify the Internal & External Dependencies as part of GST Compliance preparation. Here is the high level Risk Planning & Mitigation

MGL & Amendments

# Description Severity Mitigation / Contingency1 MGL framework has dual GST –

Any changes will have cascading impact

High Having enacted the MGL, the framework of dual GST has been baselined.

2 Tax Slabs / Rates are not defined Medium Configurable solutions in IT Systems helps in defining Tax rate, mapping, etc

3 Only MGL is enacted - let us wait for the final Bill

Medium Bill has to be passed in parliament – it is outside our control. Absorb the Risk

4 Changes to internal IT systems can be made after freezing the Bill

High With MGL framework, initiate the IT development & prepare for compliance

5 Lack of clarity on the GSTN requirement / formats

High Acknowledge the Risk and have contingency plan worked for development

15G.U.I.D.E

GST Impact on DMS – EstimatesDevelopment• On an average the development effort is estimated between 15 to 20% of the customized solution • Additional effort required for Developing GSTN interface formats (Still the format is not available)• Testing requires end to end• Overall effort can be around 35% to 40%

Operational• Generally, the magnitude of Operational complexity is termed as twice that of development• The success of the software is not passing the testing but put into correct usage• Training to End users, Piloting

Timeline• Since the Target date is 01-July-2017 for Go Live, it is important to keep it ready by 01-June-2017 so that it

helps in focused roll out

16G.U.I.D.E

GST Impact on DMS – Process ModelSuggest the model to define the Processes.

V-Process Model helps to :• Define the Specifications along with Evaluation

criteria at every stage• Understand the implications & exceptions if

properly designed & defined• Mandatorily Test each deliverable• Monitor Project Progress based on deliverables• Achieve higher chance of Success• Increase Productivity• Accelerate Development

Can be used within an iterative stepSince the prime result of Proto-type is almost equivalent to the end product, better to initiate the development in order to meet the timelines

Software Development & Walking on Water are Easy …. Provided both are FROZEN

17G.U.I.D.E

GST – Gate Check for Implementation

01 July 2017

Ideally X, Y, Z should have value (months) as 1, 2 & 3 respectively. That means, if the Target Date (T) is 01-July-2017, then, T-x should be completed by 01-June-2017. This gives ample time for handling unknown-unknowns

18G.U.I.D.E

GST Impact on DMS – Measuring the Project Progress

Impact Analysis Project Plan

Desig

n Ch

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s

Deve

lopm

ent

Prep

are

Test

Ca

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Unit

Test

UAT Pilot

Go Live

20%

60%

80%

100%

Key Criteria

• Target Date is FIXED – Need Reverse Pass• Formulation of CORE Group• Core Group should consists of representation from:

• Sales / Business• IT (ERP, Development, Testing & Implementation)• Finance, Taxation, Audit Teams

• Define R & R and fix responsibility• Understand the GST & Document the Impacts• Acceptance Test Criteria to be defined in parallel• Identify Critical Business Scenarios & Pilot Sites• Weekly Reviews followed by Gate Checks• Do it Right First Time, Every Time (no Variance)

Note: This is limited to Go Live. The Success of the implementation to be measured post go live

19G.U.I.D.E

GST Impact on DMS – Bringing Delivery Excellence• GST tax implications to be documented separately in similar terms of Business Requirement Document (BRD)• Strongly recommend to have a matrix based GST Tax structure for ease of understanding to the technical &

testing teams• Requirement Traceability Matrix will help to the greater extent in not missing out things during testing• Risk Management for identifying the mitigation plans• Product Acceptance Criteria definition should be a measurable one:

• 95% of Test Cases should be Passed successfully• Zero Failure on Critical / Fatal & Major type Test Cases

• Operational challenges• Classify it as Internal & External Challenges• Strategize separate plans for Corporate & Distributor level challenges• Have training & implementation plan for Pilot & Rollouts• Create Network & understand the latest updates … especially on the Formats for filing the Tax returns

Thanks for reading with patience. I always believe my core strength is Delivery (Software) and I have took special focus in learning the GST as part of academic interest by going through the MGL and discussing with consultants. I am sharing my learnings & ideas for transformation based on my experience & passion to deliver.

Believe it has provided the necessary insight into the GST, its impacts and how to get your systems ready for the show.

Some of the crucial factors are on the GST behaviour with respect to Transactions. Further, these are to be verified & validated for compliance. Based on the response received, I will try to release the next version with deep dive on to Transaction Analysis and Verification & Validation Rules for compliance.

Yours,Gans(Ganapathy Subramaniam T.K.)

Thank You

ganstk@gmail.com Suggestions / feedback 01-March-2017