GST Implementation in India

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A tax trigger aimed to replace the current complex structure of multiple indirect taxes in favour of a comprehensive dual Goods and Services Tax (GST) is becoming a reality soon. With clear road map being laid down by the Finance Ministry, the Government seems on course to fast track the entire process to achieve targeted GST implementation effective 1 July 2017.

On 12 April 2017, the Central Government enacted four GST Bills:

  • Central GST (CGST)
  • Integrated GST (IGST)
  • Union Territory GST (UTGST)
  • Bill to Compensate States

Till date, most of the states have passed the State GST (SGST) law in the respective State assemblies, while other States are expected to do it by end of June 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.

The second phase of enrolment process for migrating existing taxpayers to the proposed tax regime through GST common portal has already commenced from 1 June 2017. GST Network, an IT backbone of GST, has also carried out the test run of its Portal.

The GST Council consisting of representatives from the Central as well as state Government, met on sixteen occasions in last seven months and cleared -

  • GST laws,
  • GST Rules,
  • Tax rate structure including Compensation Cess,
  • Classification of goods and services into different rate slabs,
  • Exemptions,
  • Thresholds,
  • Tax administration

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  • Run-up to GST
    • About 6 States have to pass State GST Law which is expected to be done by end of June 2017.
    • GST Council has scheduled its next meeting on 18 June 2017 to take up pending matters, including e-way bills and anti-profiteering mechanism.
    • GST Council has set up 18 sectoral groups to iron out sectorial 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, Small and medium enterprises, media & entertainment, drugs & pharmaceuticals, mining, handicrafts, travel & tourism, big infra, e-commerce, food processing.
  • GST Rates

    Rate classification for goods

    EY - Rate Classification for goods

    Exempt

    5%

    12%

    18%

    28%

    28% + Cess

    Food grains
    Cereals
    Milk
    Jaggery
    Common Salt

    Coal
    Sugar
    Tea & Coffee
    Drugs & Medicine
    Edible Oil
    Indian Sweets

    Fruit Juices
    Vegetable Juices
    Beverages containing milk
    Bio-gas fuel
    Fertilizers

    Capital goods
    Industrial intermediaries
    Hair Oil
    Soap
    Toothpaste

    Air conditioner
    Refrigerators

    Small cars
    (1% / 3% cess)

    Luxury cars
    (15% cess)

    Rate classification for services

    Exempt

    5%

    12%-18%

    28%

    • Education
    • Healthcare
    • Residential accommodation
    • Hotel/ Lodges with tariff below INR 1000

     

    • Goods transport
    • Rail tickets (other than sleeper class)
    • Economy class air tickets
    • Cab aggregators
    • Selling space for advertisements in print media
    • Works contract
    • Business Class air travel
    • Telecom services
    • Financial services
    • Restaurant services
    • Hotel/ Lodges with tariff between INR 1000 and 5000
    • Cinema tickets
    • Betting
    • Gambling
    • Hotel/ Lodges with tariff above INR 5000

    Only rates of select goods and services have been mentioned here

    • GST rate on pearls, precious or semi-precious stones, diamonds (other than rough diamonds), precious metals (like gold and silver), imitation jewellery, coins – 3%
    • GST rate on rough diamonds – 0.25%
  • 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 Veiling 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, 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.

    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.

  • EY Advantage

    Policy advocacy

    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:

    EY - Satya Poddar

    Satya Poddar

    Tax Partner – Policy Advisory Group;
    Recognized as global thought leader on GST

    EY - V S Krishnan

    V S Krishnan

    Advisor, Tax Policy group;
    Former Member (Service Tax & GST), CBEC, and member of the GST core group

    EY - Venkatesh Narayan

    Venkatesh Narayan

    Executive Director, Tax & Regulatory Services;
    Architect of IT initiatives in CBEC; initiated the GSTN, pilot project with NSDL & IT readiness survey in states

    EY - Prakash Jayaram

    Prakash Jayaram

    Partner, Advisory;
    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.

    Integrated approach

    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:

    EY - Harishanker Subramaniam

    Harishanker Subramaniam

    National Leader – Indirect Tax Services

    EY - Neel Goyal

    Neel Goyal

    Partner – Advisory Services

    Technology edge

    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

    EY - GST 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

    Destination principle

    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

    With the proposed implementation of GST from 1 July 2017 gaining intensity, it is critical for industry:

    • to understand the broad contours and framework of the proposed GST law,
    • likely impact of the new levy on the business,
    • take appropriate steps to undertake necessary changes in business processes,
    • assess financial impact,
    • frame pricing strategy,
    • align internal organization and IT systems and
    • Be GST ready.