GST The Game Changer Presentation by CA Mahesh Jain 23rd August 2015

Agenda GST Concept / Structure High Level Understanding of Impact of GST Suggested Plan for smooth transition to GST

Ved Vyas in epic Mahabharat : The King should behave like those bees which collect honey without causing harm to the tree.

GST

Present Indirect Tax Structure of India Present Tax Structure Excise Duty on Manufacturing of Goods Service Tax on Provision of Services Custom Duty on Import / Export of Goods VAT / CST on Sale of goods Entry Tax on Entry of goods

Central Govt. State Govt. GST Design Subsumed in GST Outside GST Central Excise Service Tax CVD/SAD CST Basic Customs Duty Stamp Duty Excise on Alcohol Octroi?/LBT?/ Municipal Tax Entertainment Tax? State VAT Entry Tax Luxury Tax Lottery Tax Subsumed in GST Outside GST

Benefits of GST Focus of Businessmen from Taxes to Business GST THE GAME CHANGER Abolition of multiple layer of taxes & events Mitigation of Double & Cascading Taxation Development of Common National Market Increase in Voluntary Compliance Efficient Administration by Government Reduced Litigation Tax Booster for Government Estimated 2% push to GDP growth Focus of Businessmen from Taxes to Business

What is GST Destination based Consumption Tax: One taxable event : i.e. ‘Supply’ instead of multiple taxable events in the present structure. Uniformity in tax rates. Composite levy: on both Goods & Services Each Stage : On value addition in the value chain Seamless Credit : Availability of all input taxes against output taxes unlike in present structure where tax credit is not available in various cases / events.

Proposed GST Rates Revenue Neutral Rate : RNR Current Regime GST Regime Excise 12.5% CGST 13.5% VAT 12.5% to 14% SGST 13.5% Service Tax 14% Total 27% CST 2% Total ?? Likely List of GST rates Exempted : basis necessities like Wheat, Rice, Milk, sugar, etc. Taxable @ 1%: Goods like Bullion, Diamonds and Precious Metals Essential Nature : 12% ?? Residuary : RNR

GST Structure Transaction Structure Set off against Who will collect Within State – Goods & Services CGST Central Government SGST State Government Interstate - Goods & Services IGST = (CGST+SGST) + 1% additional tax on Goods Fungible 1% additional tax is cost Collected by Center. Retain CGST, transfer SGST Import of Goods BCD + IGST IGST is Fungible. BCD is cost Collected by Center. Retain CGST & BCD, transfer SGST Import of Services IGST = (CGST+SGST) Fungible Collected by Center. Retain CGST, transfer SGST Export of Goods & Services Nil Input credit refundable NA

Pricing, Margins, Schemes Overall GST impact GST THE GAME CHANGER Cash Flows Distribution Sourcing IT systems Accounting Compliance Pricing, Margins, Schemes PAN based identification New formats of invoices, waybills, returns/challans etc. Invoice level compliance Rate change to be implemented Classification of G&S Manner of computation of payment Revisiting sourcing mix local / inter-state / imports / exempt zones Vendor price renegotiation Revisit manufacturing arrangements Valuation for imports for computing IGST Manufacturing arrangement (i.e. Own/ Tolling / Contract manufacturing) Tax impacts on long-term contracts; indent Commission Revisit HSS, Bond sales, stock transfers Single or multiple warehouse Check posts to continue ? Marketing Schemes / Credit Notes / FOC supplies Revisit Value Chain Revisit Sales to unregistered buyers who are channel partner Chart of Account Accounting of Goods Receipts Payment to Supplier – Check with GST credit State Wise Booking Separate Accounting of IGST, CGST, SGST Payment from Customer – Check with GST credit Master databases (vendor, customer, material, tax rates) Transaction Type – Inter-state or Local Templates (Invoice, Purchase order) Tax computation Statutory filings (Return/ Declaration forms) MIS Reports like price comparative reports Validation of Input tax credit with GSTN GST on stock transfers Withdrawal of ‘Form C’ Exemptions to Refunds Import GST State wise Credit Utilization

GST Impact on Product Pricing Levied only on Cost GST Impact on Product Pricing Value Chain Current Regime @ 12.5% + 12.5% GST Regime @ 12.5% +12.5% =25% VAT Levied on Cost + Excise Manufacturer to Wholesaler: Cost of goods manufactured (inclusive of Profit) 10,000 Excise Duty / CGST 1,250 VAT / SGST 1,406 Invoice to Wholesaler 12,656 12,500 Cost + Excise + 10% Margin Wholesaler to Retailer: Sales Price (adding margin of 10%) 12,375 11,000 CSGT - 1,375 VAT / SGST 1,547 Invoice to Retailer 13,922 13,750 Retailer to Consumer: Sales Price (adding margin of 10%) 13,613 12,100 CSGT - 1,513 VAT / SGST 1,702 Invoice to Consumer 15,314 15,125 Selling Price Of Whole Seller + 10% Margin Cost Savings to Consumer 189 % Cost Savings 1% Taxes Paid To Govt 2,952 3,025 Customer Gain = 189 + Govt. Gain = 73 Total 262 Wholesaler margin on ED = 125 + Retailer margin on ED = 137 Total 262

Input credit validation on invoice matching In progress: Government IT Infrastructure for GST GSTN Registration process Return process IGST settlement Input credit validation on invoice matching E-payment

What would it take? Preparation of Transition Roadmap Align business processes to GST regime Software solutions to meet GST requirements Training of all personnel on new processes