Being GST Compliant
Goods and Services tax (GST) has been identified as one of most important tax reform post-independence. It is a tax trigger, which will lead to business transformation for the industry.
Given the enactment of four central GST Bills [i.e. Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST) and the bill to Compensate the States] on 12 April 2017, and with the clear road map being laid down for passage of State GST (SGST) laws in the respective State assemblies, the Government of India seems to be on course to implement GST with effect from 1 July 2017. Till date, eight states have passed the SGST law, while other States are expected to do it by end of May 2017.
The GST Council consisting of representatives from the Centre as well as states, after being constituted, met on thirteen occasions to discuss various issues including dual control, GST laws, exemptions, thresholds, rate structure, compensation cess etc. and reached consensus on the same. Council has also recommended four-tier GST rate structure and the thresholds. GST council has approved five rules dealing with registration, refunds, returns, invoice and payments and four draft rules for input tax credit, valuation, transition and composition scheme. The next meeting of GST Council is scheduled on 18 and 19 May 2017.
Union territories with legislature, i.e., Delhi & Puducherry, will adopt SGST Act and the balance 5 Union territories without legislatures will adopt UTGST Act.
Meanwhile, Centre and States have already started enrolment process for migrating existing taxpayers to the proposed tax regime through GST common portal. GST Network will soon commence the test run of the IT Portal.
- Run-up to GST
- Remaining states will take up SGST Bills for clearance in the respective state legislative assemblies.
- The list of exemption and the classification of goods and service are expected to be notified post GST Council meeting this month.
- GST council will finalise the four draft rules based on the suggestions received from stakeholders.
- As per the office order issued by the Central Board of Excise and Customs, the Government has set up 10 working groups to iron out sectoral issues faced by trade and industry to ensure smooth transition to GST. Sectors include banking, telecom, IT/ITES, financial, textile, oil and gas, gems and jewellery, transport and logistics, and MSMEs.
- What GST brings with it?
GST is expected to be a destination-based tax that should replace the current Central taxes and duties such as Excise Duty, Service Tax, Counter Vailing Duty (CVD), Special Additional Duty of Customs (SAD), central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies).
It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies would attract an Integrated GST, which would be the sum total of CGST and SGST/UTGST.
Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas will be brought under the ambit of GST from such date as may be notified by the Government on recommendation of the Council. Alcohol for human consumption has been kept outside the purview of GST.
Consensus between Central and state governments has been reached on four-tier rate structure as follows:
A well-designed GST in India is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory. The proposed GST levy may potentially impact both manufacturing and services sector for the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales, and pricing. It will also stimulate the need to relook at internal organization and IT systems.
With its proposed implementation from 1 July 2017 gaining intensity, it is critical for companies, which have business operations in India to understand the broad contours and framework of the proposed GST law, likely impact of the new levy on their business and start taking appropriate steps to meet its requirement and be GST ready.
- EY Advantage
EY has been closely involved with the GST initiative through its Policy Advisory Group - it comprises a specialized team of experienced professionals, including former government officials who advise businesses as well as governments on diverse policy issues. The Group has diverse VAT and GST experience through extensive interactions with both the Centre and the State Governments in India and overseas engagements in various jurisdictions.
EY Policy Advisory Group helps businesses anticipate policy changes, assess their impact on their operations, and engage in a constructive dialog with relevant authorities for remedial measures to address any concerns. Our Policy Advocacy group includes:
Tax Partner – Policy Advisory Group;
Recognized as global thought leader on GST
Advisor, Tax Policy group;
Former Member (Service Tax & GST), CBEC, and member of the GST core group
Executive Director, Tax & Regulatory Services;
Architect of IT initiatives in CBEC; initiated the GSTN, pilot project with NSDL & IT readiness survey in states
Former Program Director for the project for designing and implementing the Goods and Services Tax system and network for the GoI
Global experience and network strength
EY has global expertise in delivering large transformation programs that includes a proven deployment approach, change management and PMO structure. EY also brings global experience in successfully delivering GST implementations, with market leading companies utilizing proven change management techniques.
EY’s transformation methodology leverages best practices, introduces innovation and builds a clear manageable roadmap.
GST is an organisation-wide transformational change that will impact the entire value chain of operations, including procurement, manufacturing, distribution, warehousing, sales and pricing.
EY has subject matter experts in goods and service tax, accounting, supply chain, project management, and IT across sectors providing thought leadership and advice on GST best practices. Our multi competency teams from Tax and Advisory with expertise on accounting standards/ principles, sector and functional understanding will facilitate companies to comply with statutory changes, while supporting in process readiness.
Our Tax and Advisory GST team is led by:
National Leader – Indirect Tax Services
Partner – Advisory Services
EY has developed a Proprietary Tool - ‘GST Navigator’ to assess and simulate business impact in the GST environment. It focusses on taxes payable, credits, pricing and margin impact and cash flow considerations. This will drive key business decisions on operating model changes required to optimize tax outcomes.
- Business Impact
- Benefits of GST
GST has been envisaged as a more efficient tax system, neutral in its application and attractive in distribution. The advantages of GST are:
- Wider tax base, necessary for lowering the tax rates and eliminating classification disputes
- Elimination of multiplicity of taxes and their cascading effects
- Rationalization of tax structure and simplification of compliance procedures
- Harmonization of center and State tax administrations, which would reduce duplication and compliance costs
- Automation of compliance procedures to reduce errors and increase efficiency
The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.
Taxes to be subsumed
GST would replace most indirect taxes currently in place such as:
Central Taxes State Taxes
- Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]
- Service tax
- Additional Customs Duty (CVD)
- Special Additional Duty of Customs (SAD)
- Central Sales Tax ( levied by the Centre and collected by the States)
- Central surcharges and cesses ( relating to supply of goods and services)
- Value Added Tax
- Octroi and Entry Tax
- Purchase Tax
- Luxury Tax
- Taxes on lottery, betting & gambling
- State cesses and surcharges
- Entertainment tax (other than the tax levied by the local bodies)
- Central Sales Tax ( levied by the Centre and collected by the States)
- Key imperatives for companies
The key imperatives for companies are:
- Understand key areas of impact in their business.
- Prepare different scenarios for the design and application of GST.
- Continually track policy development regarding GST and update prepared scenarios.
- Identify any areas of adverse impact and prepare contingency measures.
- Identify issues and concerns needing representations to the authorities and develop a strategy for effective advocacy.