1. Framework for the Goods and Services Tax

2. Contents Constitutional Framework Process Framework IT Framework1
Constitutional Framework 2
Process Framework 3
IT Framework 4
Getting ready for GST

3. Constitutional Framework

4. Goals of GST reform Neutralities
Labour–Capital neutrality – non-cascading
Geographical neutrality– Common market
Trade neutrality – Make in India
Supply chain neutrality
Product neutrality
Transaction/ Finance neutrality

5. GDP flow chart

6. Current indirect tax system in India
State VAT
CENVAT / Service Tax
Primary
Producers
Primary
Producers
Service
Providers
Service
Providers
Primary
Producers
Primary
Producers
Service
Providers
Service
Providers
Manufacturers
Service
Resellers
Manufacturers
Service
Resellers
Distributors
Resellers
Real Estate
Distributors
Resellers
Real Estate

7. Proposed GST framework
Primary
Producers
Primary
Producers
Service
Providers
Service
Providers
Manufacturers
(less exclusions)
Service
Resellers
Distributors
Resellers
Real Estate/
Petroleum

8. Issues under debate Fiscal Autonomy Vs Harmonization Tax Rates
Tax Base
Taxes to be subsumed
Compensation to States
Consensus in GST Council
Dispute Resolution

9. Taxes to be subsumed by GST
Central taxes
State taxes
Excise Duty, except petroleum and tobacco
Countervailing Duty (CVD) in lieu of Excise Duty
Special Additional Duty (SAD) of Customs
Service tax
CST
Surcharges & Cesses (relating to supply of goods & services)
R&D Cess ??
VAT
Entry tax
Luxury tax
Tax on entertainment and amusement, lottery, betting and gambling
State Cesses & surcharges (relating to supply of goods & services)

10. Taxes that will not be subsumed by GST
Central taxes
State taxes
Stamp Duties
Electricity duty
Taxes on goods and passengers carried by road or on inland waterways
Taxes on vehicles (Road tax)
Tolls
Basic Customs Duty and Export Duties

11. Empowering the Union and States to levy the GST
Dual GST: Both the Centre and States given concurrent powers to levy GST
IGST: Centre given exclusive powers to levy GST on supplies in the course of inter-State trade and commerce and imports into India
GST defined as any tax on supply of goods and services other than on alcohol for human consumption
Effective date of these powers to be the date recommended by the GST Council
Centre empowered to formulate rules for the Place of Supply

12. GST base Consists of goods and services
Goods defined in Article 366(12):  ”goods includes all materials, commodities, and articles”
Services defined as “anything other than goods”
No concept of deemed sales for GST (e.g., works contract, leasing, etc.)
Debatable whether land and real property sales included in the definition of services
Agreements for purchase of real property prior to construction could be outside the scope of GST without the concept of ‘deemed sale’
Real property leases considered a service and thus subject to GST
Electricity to be excluded because electricity duty not subsumed

13. Current inputs and capex cascading base
Inputs subject to cascading #
Description
Present system
(Rs. Trillion)
Truncated GST A
Current inputs 1
Petroleum sector
< 3.48
3.48 2
Electricity sector
< 1.29
1.29 3
Alcohol sector ? 4
Service sector – goods subject to VAT
.> 6.5 5
Trade sector – goods inputs subject to excise duty
0.19 6
Trade sector – service inputs subject to service tax
1.77
Total current inputs
< 13.23
4.77 B
Capital inputs 7
0.80 8
1.13 9 10
Construction
7.94 11
Other Capex – Trade and Service sector
< 4.5
Total Capex
< 14.37
9.87

14. Cascading through CST 2% CST (Rs crores) 1% Additional Tax
Inter-state Sales
34,000
17,000
Inter-state Consignments
Nil
>50,000

15. Tax rates GST rates to be decided by the GST Council
Revenue Neutral Rates (RNR) estimated by NIPFP:
Three-rate structure (combined CGST+SGST):
1% (or 2%?) for precious metals and articles,
12% for basic necessities,
27% Standard Rate for all other goods and services.
Extreme discomfort with these rates and their accuracy
Options for a single moderate rate are under consideration

16. Indirect tax revenues – Centre & States - Taxes to be subsumed within GST#
Description
FY13 (Rs. Cr)
Actual
FY14 (Rs. Cr) RE 1
Union Excise Duties (UED) + Service tax incl. POL revenues)
3,08,446
3,43,714 2
UED less POL revenues + Service tax
2,23,548
2,55,114 3
State revenues to be subsumed within GST (incl. POL and Alcohol)
4,46,566
4,92,260 4
State revenues to be subsumed within GST (excl. POL and Alcohol)
3,00,530
3,28,515 5
Centre + State revenues (incl. POL & Alcohol revenues)
7,55,012
8,35,974 6
Centre + State revenues (excl. POL & Alcohol revenues)
524,078
583,629 7
GDP at current market prices
1,01,13,281
1,13,55,073 8
Centre + State revenues/ GDP ratio (incl. POL & Alcohol revenues)
7.47%
7.36% 9
Centre + State revenues/ GDP ratio (excl. POL & Alcohol revenues)
5.18%
5.14%
Note: State taxes to be subsumed include State VAT, CST, Entry tax, Entertainment tax, Purchase tax
Source: RBI study of State Finances, CSO, Union Budget documents

17. RNR estimation - Alternate scenarios#
Description
Unit
Amount 1
GDP at current market prices (FY13 approx.)
Rs. Trillion (Lakh crore)
100 2
Comprehensive GST base – PFCE + GFCE on goods and services (approx. in FY13)
Rs. Trillion 60 3
Centre and State indirect tax revenues / GDP ratio
(incl taxes to be subsumed within GST and excl. taxes from Petroleum products and Alcohol) %
5.18
Revenue Neutral Rate – alternative scenarios 4
If base is Rs. 60 trillion (60% of GDP)
8.6 5
If base is Rs. 45 trillion (45% of GDP)
11.5 6
If base is Rs. 20 trillion (20% of GDP)
25.9

18. GST Base and Revenue Productivity
Modern VATs have broader tax base, and yield higher revenues
New Zealand has the broadest base, the highest revenue productivity

19. Process Framework

20. GST Registration Salient Features Open Points
Separate registration for each State
15-digit (alpha-numeric) PAN-based GSTIN
Fully online registration process with no physical documentation / inspection of business premises involved
Flexibility to use existing registration data in one State as template for further registrations
Option to authorize representative during Registration
Amendments of non-core fields of registration data on self-service basis
Migration of existing dealers
Dual Jurisdiction mechanism
Single vs Multiple registration within a State
No clarity on how Input Service Distribution (ISD) mechanism will work
Extent of State specific fields in the Registration Form

21. GST Return Salient Features Open Points
Monthly return filing for all Regular taxpayers
Self-assessment of tax liability (for one tax period only)
Common e-Return for CGST, SGST, IGST and Additional Tax (for each registration)
Upload of B2B supply invoice information is must before filing of return; Procurement list (B2B) to be generated automatically by GSTN
Annual Return to include reconciliation statement with the audited financial statements of the taxpayers
Place of Supply rules and its implications on Return filing
Destination State wise aggregation of B2C inter-State supply details
Capturing and processing of information pertaining to non-eligibility / partial eligibility of credit (including capital goods)
Mechanism for auto reversal of credit; revision of submitted invoice information and its impact on counter-party

22. GST Payments Salient Features Open Points
Common challan for CGST, SGST, IGST and Additional Tax
Filling up of electronic challan is must for payment (irrespective of payment method)
Both Online (including Credit Card, Debit Card) and offline modes of payment will be available
Offline payment modes have certain restrictions in terms total amount that can be paid
Payment can be made anytime
Date of realization vs date of deposit as date of payment
Whether tax payment to be linked to tax period or a personalized ledger will be maintained
Dispute resolution

23. Input credit mechanism
Taxes paid at input stage are available as credit against the output tax liability
GST credit mechanism
CGST
SGST
IGST
CGST
SGST
IGST
CGST
IGST
IGST
SGST
Impact
If CGST credit may be pooled in for all the States, chances of blocked excess credits would be minimal
Utilization possible if ISD is introduced
Separate credit pools would be maintained for each State
Credit utilization possible to the extent of output SGST & IGST
Hierarchy of utilization – top down as above
Fungibility should be allowed across registrations for a legal entity as IGST is administered by Central Government

24. IT Framework for GST

25. IT Pre-requisites for GST
IT strategy for GST
IT Pre-requisites for GST
IT Strategy for GST
Harmonization of Business Processes & Forms
Uniform Tax Payer Interaction and Experience
Monitoring of inter-State supply with complete details
Comprehensive Automation
Common and shared IT Infrastructure: A GST Common Portal for the core services of Registration, Return and Payment
Common PAN-based registration
Common Business Processes and Forms -standardized return and challan for all taxes (with different account heads for CGST, SGST, IGST and Additional Tax)
Each tax authority to have full flexibility in using this data for in- house automation, integration, and enforcement

26. IT Strategy - Balancing autonomy with harmonization
Core Services
Registration
Returns
Payments
IGST Settlement – processing of information on Inter-State supply and cross-credit utilization
Helpdesk support
Tax Payer Profiling
Common & Shared
IT Infrastructure (GST System)
Harmonization of Business Processes and Formats
Centre/States
Tax IT Systems
Autonomy of back-end systems of States and Centre
Approval of Registration
Assessment
Refunds
Audit and Enforcement
Adjudication
Internal workflows to support above functions
Statutory Functions
Non-Statutory Functions IT
Interfaces
IT Enablement

27. Goods and Services Tax Network (GSTN)
Limited Service Model – Mandatory
Full Service Model – Optional
GST System (with common GST Portal) providing three core services common across the country
13 States have already opted for full service model; others may also join in
Appeal / Refund
Registration
Audit
Assessment
Payments
Returns
GSTN
Payments
Returns
Registration
GSTN
GSTN

28. Illustrative Return filing steps
Upload of B2B supply invoice level details
Auto-drafting of counter-party purchase register based on such uploaded supply invoice details
Acceptance of auto-drafted purchase register by counter-party dealer
Generation of draft return
Payment of due tax
Submission of Return

29. Getting ready for GST

30. Key issues for Auto sector
Rates and base
Availability of input tax credit
Refund of excess input tax credit
Pooling of tax liability and available input credit across States
1% additional tax and its applicability to consignment transfer
Whether premium automobiles will be subject standard rate of tax
Whether tax on vehicles will be fully creditable to commercial users
Transitional provisions
Carry forward of excess credit from current regime
Continuation of Centre and State incentives

31. Key issues for Auto sector
Treatment of
Sales incentives, e.g. Financing subsidies, free insurance etc.
Trade-in allowances
Resale of used vehicles
Post-sale volume discounts to dealers
Add-on options in case automobiles are taxed at a higher rate
Fuel provided with a new vehicle
Neutrality in the treatment of sale and leased finance vehicles
Extended warranties and replacements under warranty

32. GST readiness – process and IT
Migration of existing registrations
Complete specification of compliance reporting procedure
Modalities of interfacing with GSTN System
Place of supply rules

33. Accounting & Reporting
GST Transition Cycle
Advocacy
GST Impact Assessment
Supply Chain
Accounting & Reporting
Technology Refresh
Compliances
Program Management
Change Management

34. Questions?

35. Thank you Ernst & Young LLP © 2014 Ernst & Young. All Rights Reserved.
Ernst & Young is a registered trademark.
Thank you
“This Presentation provides certain general information existing as at the time of production. This Presentation does not purport to identify all the issues or developments pursuant to the transaction. Accordingly, this presentation should neither be regarded as comprehensive nor sufficient for the purposes of decision-making. Ernst & Young does not undertake any legal liability for any of the contents in this presentation. The information provided is not, nor is it intended to be an advice on any matter and should not be relied on as such. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of Ernst & Young, this document may not be quoted in whole or in part or otherwise referred to in any documents.”
For discussion purpose only