Goods & Service Tax Discussion on Challenges & Synergies August, 2010

By CA. Vinay Bhushan Contents Present taxation system of India What is Goods and Service Tax (“GST”) – An Introduction Silent features on “First Discussion Paper on GST” Broad propositions – Not covered and clear Broad propositions - Reasonable clear Challenges before Industry/Service Sector Proactive actions – Requirement Areas - Tax Synergy

By CA. Vinay Bhushan Present Taxation System in India Multistage taxation on manufacture and distribution channels Sectors specific taxes like Entertainment Tax, Luxury Tax, Textile Cess etc. Difference types of Cesses like Education Cess, Secondary & Higher Education Cess etc. Tax on value additions i.e. Value Added Tax Tax on Inter State transaction i.e. Central Sales Tax

By CA. Vinay Bhushan Manufacture Sector - Multiple Taxes Manufacturing Sector Value Added Tax { 0%, 4%, 12.5%} Central Sales Tax {2%} Central Excise Duty {8%} Educations Cesses {3%} R & D Cess {5%} Other local taxes like Entry Tax, Octroi, State Cesses etc. are also applicable

By CA. Vinay Bhushan Service Sector - Multiple Taxes Service Sector Education Cess {2%} Secondary & Higher Education Cess {1%} Service Tax {10%}

By CA. Vinay Bhushan Silent features of the Discussion Paper on GST GST shall have two components (1)levied by Central Government (Central GST) (2)levied by State Government (State GST) GST Will be governed by multiple statutes Cross utilization of Input Tax Credit (ITC) between Central GST & State GST would not be allowed Periodical returns need to be filed with Central and State authorities separately, tax will be deposited through separate account heads PAN- linked taxpayer identification number will be issued

By CA. Vinay Bhushan Silent features of the Discussion Paper on GST Threshold Limit:-  State GST for Goods& ServicesINR 1.00 Million  Central GST for GoodsINR Million  Central GST for ServicesNot provided (however it is conveyed that it will be appropriately high) Compounding / Composition Limit:-  Composition/compounding limit INR 5.00 Million with tax at the rate of 0.5 %

By CA. Vinay Bhushan CENVAT CREDIT MECHANISM UNDER PRESENT TAXATION AND PROPOSED GST Present Taxation Scheme - Cross credit of good and service tax is allowed since September 10, 2004; But limited to Central Excise & Services Tax - Cross credit among VAT and Service Tax, Central Excise is not allowed - Credit on inter- State transactions is not allowed; - Cross Credit of VAT with CST liability is allowed Proposed GST - Cross credit of good and Services would be allowed - Cross credit with respect to Central GST and State GST transaction would not be allowed

By CA. Vinay Bhushan TAXES WHICH WOULD BE SUBSUMED UNDER THE PROPOSED GST Central Taxes - Central Excise Duty - Additional Excise Duty - Service Tax - Additional Customs Duty (CVD) - Special Additional Duty of Customs (SAD) - Surcharges and Cesses State Taxes - VAT /Sales Tax - Entertainment Tax - Luxury Tax - Tax on Lottery, betting & Gambling - State Cesses and Surcharges - Entry Tax GST CGST IGST SGST

By CA. Vinay Bhushan Broad Propositions- Not Covered and not Clear GST rates are not disclosed Valuation mechanism of Goods and Services Place of provision of Services or place of receipt in case of services are not clear Taxable event- whether on receipt basis or on receivable basis No discussion on Stamp duty on Immovable property

By CA. Vinay Bhushan Broad propositions - Reasonable clear Cross Credit among the CGST & SGST- Not allowed Three type of taxes- CGST, SGT & IGST No change for Liquor, Petroleum Industry

By CA. Vinay Bhushan Challenges & Proactive Actions before Industry/Service Sector Business Restructuring:  Phasing out of CST  Change in tax rates of goods and services  Logistics, Transaction model etc. Location Based Exemptions Export Obligations Change in ERP Systems Training of Middle Management Team

By CA. Vinay Bhushan Areas - Tax Synergy Analysis of Tax rates Vs. Pricing Policy, Business Cycle Warehouse/logistic Vs. Direct Supply Stock Planning Backward & Forward integration of business if there is change in tax rates of Inputs or output

By CA. Vinay Bhushan How Tax Managers/Consultants can add value Mapping of current transactions  Mapping of flow of good and services  Ascertain current tax cost Impact Analysis and what if analysis  Assessment of impact of GST on draft legislation  Key structuring/changes in business operations  Identify possible alternative business model  Potential actions to mitigate adverse GST effect (if any) Final Impact Analysis Implementation Assistance

By CA. Vinay Bhushan How Tax Managers/Consultants can add value Implementation Assistance  Transition Stock Planning  Registration under new legislation/s  Maintenance of records as per new formats  Manner of computation of Credit and tax liability  Invoice Formats  Changes in ERP/accounting system

By CA. Vinay Bhushan THANK YOU