GST Impact - Sectors CA Madhukar N.Hiregange,

Need for GST 5. High cost of tax collection leads to lower tax yield to the Government 1. Multiple taxes lead to double taxation & cascading effects 2. Structure involving multiple taxes not in sync with global practices 4. Lack of uniformity in provisions and rates 3. High cost of tax compliance and double taxation leads to higher prices of goods & services

Impact of GST on Economy Improve competitiveness – export – 5-7% Boost FDI investment in India Increase in Value of Indian Rupee – higher ROI for investor Rate of 18% for Manufacturer and Traders could reduce costs Rate of 18% equals present 15% rates (services credit) Push GDP growth by 1.5% - 2%

Critical Components -Model GST Law of GST Supply Taxability Valuation Place of Supply Tax Credits Registration Returns

Rates- Probable ? Rates – Zero, Nil, 5%, 12%, 18%, 28% Half of items in CPI to be Nil rated Earlier declared good- 12% Most goods/ services – 18% Soft drinks / Luxury cars – 28% Tobacco – higher than 60% Coal and luxury cars – cess in addition to GST Real estate – 18% [present – VAT 10% + ST 6%] Rate of gold and precious metals & cess rates – not announced

IT Systems Master Data Updating vendor/ customer details invoice structure etc. Transaction Data Realign open transactions, inventory & credit balances GSTN Interface Provision for interface with GST network for filing returns & reconciliation GST Note Implement Implement system’s notes for changes to price & tax related configures Registers/Reports Maintenance of records such as CGST, SGST/IGST registers. Maintain state wise CGST & SGST

Impact of GST – General Lower transaction cost due to reduced corruption Increased tax revenue - DT + IDT Adoption of IT resources - better Tax neutrality – to some extent More transparency + accountability?

Impact on Service Sector Rate – 18 %; No of assessees- 20 Lakhs ( 40 by Nov-17?) Present contribution – Rs. 280,000 Crores; Fastest growing

Service Sector Service provider have to register separately in all the States in respect of SGST - if he has the multiple place of businesses in multiple states. Verticals addl. Service provider have to file separate returns with each State Government in respect of SGST Separate assessments, audits and demands International competitiveness only if swift/ prompt refund- time limit put from when is ?

Service Sector…. Supply of service is also taxable in GST regime hitherto was not taxable. (Ex. Supply of insurance cover by bike dealer to customer from the insurance company) Service provider eligible for credit of VAT portion on his purchases hitherto not eligible. Service provider has to pay the IGST on interstate supplies

Service Sector…. Identification NOT Eligible for composition scheme - tax rate 2%? - 50 lakhs - conditions Two levies on same service - SGST and CGST, hitherto only one tax i.e. service tax Dispute as to value of goods/identification of goods may not go

Service Sector…. Free services will also become taxable Taxable Free supply of goods and services by service receiver to service provider will be taxable since it is tax on supply All reimbursable expenditure collected by service provider will be taxable as it is nothing but supply. Taxable

Service Sector…. No segregation between manufacture, services and trading for utilization of credit. Pure services – more expensive- rich consume more services Works contracts – Huge impact if not under merit rate

Impact on Manufacturers Rate – 18% Nos – 3 Lakhs [ 30 Lakhs by June 2017?] Rs.2,50,000 Crores Huge Employment Potential

Impact on Manufacturers SSI exemption may be reduced up to 20 lakhs instead of 1.5 Cr. Eligible for VAT Credit Exemptions will be minimum Cost of goods will reduce for RNR goods Supply chain has to be restructured Area based exemptions- doubtful Full credit of tax on interstate sale Himachal Pradesh-doubtful??

Manufacturers…. Faster movement of goods with elimination of check post & entry tax barriers No retention/disallowance of credit on stock transfer Stock transfers will be taxable under GST regime, hitherto not taxable Excise tariff disputes may go Branch Factory

Manufacturers… Cost of production would decrease - tax neutrality Faster movement of goods – lower cycle time Transaction cost of compliance more or less? Reduction in exemption/ confusion would lead to less- evasion/ corruption / disputes Transparency for consumer

Manufacturers…. All normal products (70%) – Reduction All luxury products (15%) – Significant reduction All presently exempted products (15%) – Increase Tax distortion for decision less ; international competitiveness; transaction cost reduced.

Rs. 400,000 crores across States Impact on Traders Sell Buy Rate – 18% No of Active Assessees: 75 Lakhs [ 1.50 Crores by Nov -17] Rs. 400,000 crores across States

Traders - Presently No credit of excise duty (CVD/ SAD if imported) – other than regd. dealers under CE No credit of CED on capital goods No credit of Service Tax No credit of CST Direct transaction cost of refund other than delay. Consumer does not know what is tax cost

Impact on Traders Traders can avail the credit of service tax and excise duty Credit of import duties will make imports cheaper for retailers Traders have to register with the Central Government for payment of CGST and IGST No form-F, such transactions are taxable Refund of VAT credit in case of Supply of goods to SEZ under GST regime Supply

Impact on Exporters 2015-16- 17 Lakh Crores ( decreasing trend along with imports) – Balance of Trade improved! Goods Export – Cascading would reduce by about 5-7% the cost of goods exported. Services Export – Faster refund + cascading may reduce costs by 3-4% of cost of services. Maybe 5-7% increase in exports due to competitiveness.

Impact on WCT WCT is service – maybe at 18% No composition Credit Restriction – major challenge For builders – deduction for immovable property part- Only liable for construction pending?? If unsold constructed part liable then credit on inputs + services in finished part?

IDTC- Report: idtc@icai.org Assisting Govt: a. Background Material on Model GST- July 2016 b. Transitional Challenges – 2015 c. Suggestions made on Model GST – 300+ d. Video lectures on Entire Model GST law. Awareness in GST 8000+ till date- 5k per month in Oct – Jan. Join IDT net for updates Empowered State wise Study Groups New Faculty Identification & GST Trainers Training (250- 150) Plans-> FAQs + Updated BGM + Certificate Course (Jan?)

GST Resources idtc@icai.org cbec.gov.in caclubindia.com gstclub.com Linked in hiregange.com hiregangeacademy.com …many more

Questions? madhukar@hiregange.com