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Gst impact study-icai

Gst impact study-icai

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Gst impact study-icai

  1. 1. Opportunities in GST – Impact study IndirectTax Committee The Institute of Chartered Accountants of India 1www.idtc.icai.org
  2. 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. 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. 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 www.idtc.icai.org 4
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 22. Impact areas Unlearn – Relearn Concepts Trader Manufacturer Service Provider NGO/Govt. 22www.idtc.icai.org
  23. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 33. Impact areas – Audit AUDIT Review present compliance, book keeping, procurement, contract, etc. Continuous check – Easy & accurate compliance 33www.idtc.icai.org
  34. 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. 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. 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. 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. 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. 39. Strategize to Optimize GST Strateg y Registratio n Branches Job work Vendor manageme nt Transactio n structuring 39www.idtc.icai.org
  40. 40. Implementation Assistance Assess complianc e needs in GST Assess training needs Prepare a Manual Training & Complianc e Assistance 40www.idtc.icai.org
  41. 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. 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. 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

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Gst impact study-icai

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