GST Update for Assocham Delegates 06th Oct 2016

What will GST do?

GST expected to change India’s indirect tax landscape

Intra State Taxable Supply Proposed Indirect Tax Structure Intra State Taxable Supply Excise and Service Tax will be known as CGST Local VAT and other taxes will be known as SGST Inter State Taxable Supply Excise. Service tax and VAT will be integrated Into IGST which is sum of total CGST and SGST Import from Outside India Custom Duty (To continue as is) In place of CVD and SAD, IGST will be charged

GST Impact Tax Rates Input Credit Cash flow impact Ops Efficiency

GST Impact – Explained with illustration

Assumptions Assumptions: For sake of simplicity, following tax rates have been assumed Excise Duty : 10% VAT : 10% CST : 2% CGST : 10% SGST : 10% IGST : 20% Value addition done at each stage is 10% over cost of Purchase

GST Impact in Inter State Supply of Goods Set off Available Inter State Sale of Goods Current Scenario GST Scenario Particulars Rs RM / PM Manufacturer (State A) Value of RM PM 100.00 Excise 10.00 CGST VAT 11.00 SGST Sale Price 121.00 120.00 PepsiCo (State A) Purchase Price Excise Set off -10.00 CGST Set off VAT Set off -11.00 SGST Set off Cost Value 110.00 IGST 22.00 CST 2.42 Additional Tax 0.00 123.42 132.00 Distributor (State B) Entry Tax 3.00 IGST Set off against CGST - First -12.10 IGST Set off against SGST - Residual -9.90 126.42 139.06 13.91 12.10 152.97 145.20 Consumer (State B) Excise paid Central Tax Paid CST Paid State (A) Tax Paid VAT Paid State (B) Tax Paid Entry Tax Paid Total Tax Paid 30.33 24.20 Set off Not Available

GST Impact in Intra State Supply of Goods Intra State Sale of Goods Current Scenario GST Scenario Particulars Rs RM / PM Manufacturer Value of RM PM 100.00 Excise 10.00 CGST VAT 11.00 SGST Sale Price 121.00 120.00 PepsiCo Purchase Price Excise Set off -10.00 CGST Set off VAT Set off -11.00 SGST set off Cost Value 110.00 12.10 133.10 132.00 Distributor -12.10 13.31 146.41 145.20 Consumer Excise paid CGST Paid VAT Paid SGST Paid Total Tax Paid 24.31 24.20 Set off Available Set off Not Available

Advantages & Issues in GST Reduction in Multiplicity of Taxes Mitigation of Cascading effect / double taxation Development of Common National Market Simpler tax regime: Fewer rates and exemptions Conceptual clarity (Goods Vs Services) Reduction of Black economy Issues: Big change in political landscape due to it being destination based taxation Valuation in case of Stock transfers, free supplies? Taxability of Racks, Crates, Bottles, Visis on returnable basis? Business to ensure vendor undertake timely compliances – commercial safeguard to be in place Treatment of existing tax benefits and other transition issues

Practical challenges in GST Implementing GST across big organizations will be a challenge especially the IT set up where there will be a dearth of quality resources for the short time window till April 17 Challenging to train people in the organization and across the value chain including distributors It will be tough to implement GST in service companies as they are not used to the multiple registrations and related complexities Government needs to train its resources to be ready for the new regime Need to remove the policing mind set and start trusting the tax payers and relate systems and processes

Any New vendor contracts to factor GST Impact Vendor Management Contracts Change in Law Clause Change in Pricing Scope of Negotiation Key vendor and customer contracts to be reviewed to check there is an appropriate tax / change in law clause to incorporate changes due to GST regime Change in Pricing to be analysed based on GST rate, availability of credits, exemptions etc. and appropriate changes to be made in contracts Negotiations – Vendors should be asked to pass on any benefits in Pricing and customers may be asked to pay additional costs Any New vendor contracts to factor GST Impact Contracts to include Statutory Compliance clause to ensure credit is available

Opportunity to review overall Supply Chain Network Design

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