Page 1 ICAI National Conference GST Presentation July 2015 EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited For discussion purpose only Shankar Bala Senior Advisor – Tax and Regulatory Services, Ernst & Young LLP, Hyderabad

Page 2 1 GST - Introduction Contents Legislative Framework GST Council Administrative Framework Impact of GST Aberrations in the envisaged GST Transitional Requirements ICAI National Conference 2015

Page 3 GST – Introduction ICAI National Conference 2015

Page 4 Introduction to GST A comprehensive levy on supply of goods and services across the value chain Classic GST does not differentiate between ‘Goods’ and ‘Services’ Government effectively collects tax on the value addition/ gross margins of each transaction Taxes paid on inputs are available as credit against the output tax liability Levied on the value added at each stage of economic activity through out the supply chain Taxes are borne by the ultimate consumer of goods ICAI National Conference 2015

Page 5 Benefits of GST Business free from taxes Eliminates multiplicity of taxes Eliminates dual taxation (vat and service tax) on same transaction Eliminates cascading of taxes Achieves uniformity in taxes ICAI National Conference 2015

Page 6 GST – An Excellent Enabler for “Make in India” Theme Right Design with broad-base and moderate rates will reduce cascading Drive increased total productivity and competitiveness with reduced capital cost and through improved resource allocation Will provide significant boost to investment and growth of the economy ICAI National Conference 2015

Page 7 India GST Progress and Roadmap Consensus between Centre & State on power sharing Agreement on the Constitutional Amendment Bill (CAB) Agreement on Taxing framework, more specifically Place of Supply Rules Formation of GST Council and Issue of draft regulations & GSTN framework Passing of the CAB (need for representation before passing) State fears on loss of revenue & compensation framework GSTN – Design & system architecture Drafting of Model GST Legislation & Industry feedback Roll - out ICAI National Conference 2015

Page 8 GST – Status update GST Progress Consensus between Centre & State State Compensation Framework Agreement on the CAB Agreement on taxing framework GST – Design & System Structure CAB voting and approval GST Council & draft regulations Drafting of GST Regulation GST rollout & implementation Dec’14July/ Aug’ 15 Sep’15Nov’15 Dec’15Jan’16 Tabling CAB* CAB Approval State approval GSTN roll out Draft Law Final Law Prepare implementation GST - on all goods & services other than alcohol Dual GST – CGST plus SGST Integrated GST (IGST) – On inter-state supplies Additional non-creditable origin-based 1% tax on inter-state supply of ‘goods’ Shift of taxing principle – Origin to Supply Goods and Services comprehensively defined Intangibles, Works contract – goods or services? * Constitution Amendment Bill Salient features of GST ICAI National Conference 2015

Page 9 GST – Legislative Framework ICAI National Conference 2015

Page 10 Current framework State VATCENVAT/Service Tax Distributors Resellers Primary Producers Manufacturers Service Providers Service Resellers Real Estate Distributors Resellers Primary Producers Manufacturers Service Providers Service Resellers Real Estate ICAI National Conference 2015

Page 11 Proposed GST framework GST Distributors Resellers Primary Producers Manufacturers (less exclusions) Service Providers Service Resellers Real Estate ICAI National Conference 2015

Page 12 Salient Features of GST Bill Proposed implementation date – GST is on “supply of goods and services” other than on alcohol for human consumption Petroleum products to be included in GST base at a future date by GST Council Dual-GST – Central GST (CGST) and State GST (SGST) on intra-state supplies IGST on inter-state supplies (including stock transfers) and imports Goods - “Goods includes all materials, commodities, and articles” Service – “Anything other than goods” 1% origin tax on inter-state “supplies” of goods, non-creditable (including stock transfers) ICAI National Conference 2015

Page 13 Central TaxesState taxes ► VAT ► Entry tax ► Luxury tax ► Tax on entertainment and amusement not levied and collected by Panchayat / Municipality / Regional Council / District Council ► Taxes on lottery, betting & gambling ► State cesses & surcharges (relating to supply of goods & services) Salient Features – Taxes to be Subsumed ► Basic Customs Duty and Export Duties ► Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights ► Taxes other than Stamp Duties on transactions in stock exchanges and futures markets ► R&D Cess? ► Stamp Duties ► Taxes on lands and buildings ► Taxes on consumption or sale of electricity ► Taxes on goods and passengers carried by road or on inland waterways ► Taxes on vehicles ► Tolls ► Taxes on professions, trades, callings and employments Taxes to be subsumed: Taxes not to be subsumed: ► Excise Duty ► Excise Duty levied under the Medicinal & Toiletries Preparation Act ► Countervailing Duty in lieu of Excise Duty ► Special Additional Duty of Customs ► Service tax ► CST ► Surcharges & Cesses (relating to supply of goods & services) ICAI National Conference 2015

Page 14 Tax Rates GST rates to be decided by the GST Council Revenue Neutral Rates (RNR) estimated by NIPFP ► Rate structure: ► Exempt goods and services ► 1% for precious metals and articles ► 12% for basic necessities ► 27% Standard Rate (all other goods and services) ► These are combined CGST+SGST rates ► Extreme discomfort with these rates and their accuracy ► NIPFP has been asked to rework based on latest revenue data available for or Various rate options under consideration as of now: ► Precious metals: Special rates ► Others ► 12% ► 12% and 18% / 20% ► 12% and 25+% ICAI National Conference 2015

Page 15 Credit Mechanism Taxes paid on inputs are available as credit against the output tax liability of each transaction Input CGST Output CGST Output IGST Input SGST Output SGST Output IGST Input IGST Output IGST Output SGST Output CGST GST credit mechanism ICAI National Conference 2015

Page 16 Current tax structure Vs Proposed GST Framework ActivityCurrent tax structureProposed GST Framework Import of goods ► Customs duty (BCD, CVD and SAD) + Entry tax ► BCD + IGST Inter-state sale / purchase (supply) of goods ► Excise duty + CST + Entry tax ► IGST + 1% origin tax (non- creditable) Intra-state sale / purchase (supply) of goods ► Excise duty + VAT ► CGST + SGST Import of Service ► Service tax ► IGST Inter-state sale / purchase (supply) of service ► Service tax ► IGST Intra-state sale / purchase (supply) of service ► Service tax ► CGST + SGST Manufacture ► Excise duty ► No duty (supply) Stock transfer (inter-state) ► NIL ► IGST + 1% origin tax (non- creditable) Exports ► Duty Free ► Zero rated All surchage and cess (in so far as they relate to supply of goods or service) subsumed in GST Specific cesses levied under different Acts by Parliament will remain. State cesses will go ICAI National Conference 2015

Page 17 GST Council ICAI National Conference 2015

Page 18 Salient Features – GST Council GST Council Quorum of council meeting Required majority for council decisions ► Union Minister of Finance (Chairperson) ► The Union Minister of State for Revenue/Finance ► The State Ministers (of Finance or other Minister nominated) ► 50% of the total members ► 75% of the weighted votes of the members present and voting ► Weights: one-third for the Centre, and two-thirds for all States taken together To be formed by the President within 60 days from the coming into force of the Constitutional Amendments ICAI National Conference 2015

Page 19 Salient Features – GST Council GST Council to make recommendations on key aspects of GST ► Taxable base, exempt products ► Principles of levy, apportionment of IGST, principles governing place of supply ► Threshold limit ► Rates including floor rates with bands of GST ► Special rate/s for specified period to raise additional resources during natural calamity ► Special provisions for Arunachal Pradesh, Assam, J&K, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, HP, and Uttarakhand ► Date for application of GST to petroleum products Council decisions are recommendations, which need to be ratified by Parliament and State Legislatures Council may decide modalities for dispute resolution ICAI National Conference 2015

Page 20 GST – Administrative Framework ICAI National Conference 2015

Page 21 GST Network Tax Payment Return Registration GST Network – Salient Features A common portal providing three core services common across the country Limited Service Model- Mandatory ICAI National Conference 2015

Page 22 Assessment / Refund Registration Audit Inter-State supplies Payments Returns GST Network GST Network – Optional Full Service Model ICAI National Conference 2015

Page 23 ► POS Rules determines ‘place of supply’ for a registered dealer to be the place of business ► Optional separate registration – Manufacturing and Trading ► Threshold – Pan India ► Registration Application: Through GST Network - to be approved within 3 days ► Approval by both State / Centre ► TIN - 15 digits alpha-numeric ► First two digits-State Code (Numeric) ► Next 10 digits (3rd to 12th) - PAN (Alpha-numeric) ► Next 2 (13th & 14th) digits for sequence of vertically disintegrated business (accommodating up to 35) (Numeric) ► 15th digit will be (Numeric)- Check digit Registration 1 GST Network ICAI National Conference 2015

Page 24 ► Common form – IGST, CGST and SGST ► Periodicity: Monthly, to be filed by 20th day of next month ► Every registered dealer to upload his Sale–list, by 10th day of next month ► B2B -Invoice wise (Tax rate wise invoice to be issued) ► B2C- Total Supply ► Purchase-list (B2B) will generate through electronic system ► Purchasing dealer will be able to view the list of sales made to him (his purchase-list) ► Reconciliation for any difference up to 17th day of next month ► A draft return will be prepared based on the information of Sales and Purchases to which the taxpayer has to validate ► Tax to be paid before uploading return; no upload permitted without payment Returns GST Network 2 ICAI National Conference 2015

Page 25 ► Separate challans for IGST/CGST/SGST ► Payment head/sub-head being different ► May be allowed to pay as one transaction but in different tax-heads ► Different challans will generate ► Payment before uploading of return ► Upload denied unless tax is paid Tax Payment GST Network 3 ICAI National Conference 2015

Page 26 Impact of GST ICAI National Conference 2015

Page 27 Conception ► Firming of business model ► Location of the factory/operations ► Make or Buy decisions ► Formulation of structures Operations viability / Competitive advantage ► Proper structuring of operations – with focus on documentation ► Setting up of Supply Chain ► Logistics and Distributions arrangements ► Project Management Impact - from Conception to Operations to Sustenance - cuts across all functions ICAI National Conference 2015

Page 28 ► Dual GST – co-operative federalism,an euphemism ► Non-creditable origin tax of 1% ► Real Property out of GST and hence the credit chain broken ► Taxes outside the GST – R &D Cess ► Provision for floor rates with band by empowering GST Council GST as envisaged – not in pristine form – with glaring aberrations ICAI National Conference 2015

Page 29 GST will transform the way we do business ► Sourcing strategy ► Distribution strategy ► Make v/s Buy ► Supply / Inventory management Tax Accounting Supply chain Capital projects Business analytics Information Technology Compliance Change management ► Business structure changes ► Incentive regime ► Working capital / cash flow ► GST awareness training ► GST communication ► Organization structure ► GST registrations ► Tax credit transitions ► Return reporting ► Costing / Pricing ► Forecasting ► Contract arrangement ► Procure to pay ► Order to cash ► Tax credits ► Tax payments ► Tax accounting ► System Changes ► Compliance ► Auditability ► Automation GST ICAI National Conference 2015

Page 30 New formats of invoices, waybills, returns/ challans etc. Classification of goods and services Compliance Key compliance requirements on introduction of GST Manner of computation and payment Statutory Forms – likely to be discontinued Reporting of accumulated credits Migration of registrations - PAN based taxpayer identification number Rate change to be implemented Redesign IT Systems Periodical returns Compliance Requirements – Transition ICAI National Conference 2015

► With GST back to

Thank You Shankar Bala Senior Advisor – Tax and Regulatory Services, Ernst & Young LLP, Hyderabad