All rights reserved | Preliminary & Tentative GOODS AND SERVICE TAX IN INDIA OVERVIEW | IMPLEMENTATION CHALLENGES Rajeev Dimri | Partner

All rights reserved | Preliminary & Tentative GST – Why so much noise… GST: IMPLEMENTATION CHALLENGES 3 | Most significant indirect tax reform in Indian history Will impact each commercial / business activity Stakeholders - Government, business community as well as common man Tax administration system will undergo significant functional change Will make indirect tax environment more simple, stable and predictable (hopefully!)

All rights reserved | Preliminary & Tentative 3 | Excise Duties including the additional excise duties Cesses in the nature of excise duty /customs duty Additional duties of customs (ie CVD and ACD) CST to be abolished Service tax Cesses and surcharges levied by Union ie education cess etc VAT/ Sales tax Entry tax not in lieu of octroi Entertainment tax (unless levied by the local bodies) Luxury tax Taxes on lottery, betting and gambling Cesses and surcharges levied by States, related to supply of goods and services Central Levies State Levies Subsumation of taxes Central GST State GST Purchase tax to be subsumed Municipal levies - likely to be out Stamp duty - likely to be out Taxes to be subsumed under GST GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative Overview of the new landscape Taxable event to be ‘supply’ States to levy tax on services Taxable event Tax rates to change for inputs and outputs Initially 1% additional tax on inter-state sales Place of supply Exemptions Likely to either be withdrawn or be converted into refund mechanism Multiplicity of taxes Possible expansion of credit base Credit pool to be maintained for each state Credit GST to subsume most current indirect taxes To be replaced by CGST and SGST, IGST and additional tax on inter-state supply Destination based tax Rules for services? Rates Likely to be consistent for all goods and services – MRP valuation may go Classification Valuation KEY GST CONCEPTS GST: IMPLEMENTATION CHALLENGES 6 |

All rights reserved | Preliminary & Tentative GST – KEY IMPLEMENATION CHALLENGES

All rights reserved | Preliminary & Tentative 6 | Paradigm shift Supply based taxation Taxability of inter-unit transfers Job-work / tolling arrangements Determining consumption state Determining origin state (to levy additional tax) Taxing jurisdiction in case of chain transactions Taxation of imports GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative 7 | Crafting a workable design Need for a pragmatic and business friendly approach Place of supply rules – special focus needed for service sector Determining taxable threshold – 10 lac v 25 lac (significant impact on tax paying base!) GST rates – difference in SGST rates likely to pose immense challenge (refer next slide) Defining valuation principles – need to ensure non repeating FIAT like experience Defining flexibility norms for states regarding tax rates, exemptions, compliances etc GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative 8 | Crafting a workable design Need for a pragmatic and business friendly approach Characterization of borderline transactions (eg works contracts, intangibles, lease, software) Special regimes – SEZ, EOU’s, Area based exemptions Synchronization with foreign trade benefits Need for simplified taxation structures for very small & large tax payers Taxation of key strategic / evolving sectors – eg real estate, ecommerce, telecom GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative 9 | Difference in SGST rates – likely challenges GST: IMPLEMENTATION CHALLENGES SGST rate Jurisdiction disputes Customer state wise SGST rates for billing purposes Tax driven supply chain planning to continue May impact port of import decisions Multitude of audits, investigation s Distortion of trade

All rights reserved | Preliminary & Tentative 10 | Transitional challenges GST: IMPLEMENTATION CHALLENGES Phased transition Some products / sectors (petroleum, liquor) may be kept outside to begin with Fate of investment linked incentives Whether the investment linked indirect tax benefits presently extended by several states would be continued under the proposed GST regime? Transition of opening credits Tax credits pertaining to the present indirect tax regime will require seamless transition Additional tax Credit eligibility Applicability on imports

All rights reserved | Preliminary & Tentative 11 | Admin and infrastructural preparedness GST: IMPLEMENTATION CHALLENGES Personnel Training needs Defining procedures and processes Systems Alignment with the new levy Proper upkeep and maintenance Network Real time coordination between various stakeholders

All rights reserved | Preliminary & Tentative 12 | Likely challenges to enforcement agencies Key challenges Managing risk of GST fraud Training needs Robust GSTN and online compliances Coordination between state & central departments Taxation of services by States Role of customs authorities GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative Likely challenges for tax payers GST: IMPLEMENTATION CHALLENGES A new tax law – a whole lot of tax controversies Transaction restructuring  Transaction structuring to be reviewed  Procurement pattern and trading models to be analysed – No significant difference between local and interstate under GST?  Billing patterns, local vis-à-vis inter state to be reviewed Records/ Accounting  State-wise sales records  Credit availment and utilization records Transition  Transition of credits  New registrations  Change in contract clauses  Review of procurement costs  Taxability of transactions spread across regimes  Treatment of tax paid inventory Re-designing of the entire ERP  Current ERP is aligned as per the current taxes  Change in accounting  Re-defining the logics  Updating masters  Overall pricing of goods – factoring of GST credits  Change in rate of taxes Costing / Pricing of goods Compliance  Tax computations  New formats for invoices / records/ returns/ declarations  Validity of statutory form (Form F/Form C)  Manner of payment of taxes  New compliance dates  Documentation for movement of goods 13 |

All rights reserved | Preliminary & Tentative BMR’s take 13 | With current level of preparedness April’16 timeline looks a daunting task However, with increasing global focus on India as investment base market, no room for postponing this critical indirect tax reform A well planned and coordinated approach between policy makers, enforcement agencies and industry critical to achieve the timeline Urgent need to roll out high-level design of the new law for deliberations by stakeholders GST the need of the hour to combat the globally so perceived ‘tax terrorism’ in India! GST: IMPLEMENTATION CHALLENGES

All rights reserved | Preliminary & Tentative 15 | Disclaimer OVERVIEW & IMPLEMENTATION OF GST Purpose of this presentation is to give a highlights of the proposed GST regime in India and not render any definitive opinion on any of the activities of stakeholders under the GST regime Prior professional advise is advised before implementation of aspects covered under this presentation Our comments in the preceding slides are based on the GST framework outlined in the First Discussion Paper on GST (2009) and the Constitution Amendment Bill, 2014 Some of the features highlighted including the IGST model for interstate supplies are understood to be under reconsideration It is likely that the final model would differ from our understanding and the implications discussed herein would accordingly vary and the contents of this presentation would need to be updated basis the revised GST frame-work in the offing BMR is under no obligation to update this presentation for future changes