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GROW AND SHARE TOGETHER! V Ramaratnam & Company, www.vramaratnam.com 1

What is GST? GST is a value added tax, levied at all points in the supply chain with credit allowed for any tax paid on inputs acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner

Ø  In simple terms it is a tax levied when a consumer buys goods or services.

Ø  GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at an all India level.

Ø  Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase.

Ø  The system allows the set-off of GST paid on the purchase of goods and services against the GST which is payable on the supply of goods or services.

Ø  This is how consumption is taxed in most developed countries

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What are the benefits of GST for Companies?

•  GST has been envisaged as a more efficient tax system, neutral in its application and distributionally attractive.

The advantages of GST are: •  Wider tax base, necessary for lowering the tax rates

and eliminating classification disputes •  Elimination of multiplicity of taxes and their

cascading effects •  Rationalization of tax structure and simplification

of compliance procedures •  Harmonization of center and State tax

administrations, which would reduce duplication and compliance costs.

What are the benefits of GST for Companies?

Destination principle Ø  The GST structure would follow the destination

principle. Ø  Imports would be subject to GST in the same

manner as domestic goods Ø  Exports would be zero-rated Ø  In the case of inter-State transactions within India,

the State tax would apply in the State of destination as opposed to that of origin. There would be an integrated GST (IGST) which is an aggregate of Inter State GST and State GST

Ø  An additional 1% tax has been proposed to be levied by the centre which will be passed on to the origin state

What taxes will be eliminated as a result of GST?

Central taxes proposed to be eliminated •  Central Excise Duty •  Additional Excise Duty •  Service Tax •  Special Additional Duty (SAD) •  Countervailing Duty (CVD) •  Central Surcharge •  Cess

What taxes will be eliminated as a result of GST?

State taxes proposed to be eliminated •  State VAT / Sales Tax •  Entertainment Tax •  Luxury Tax •  State Cess and Surcharge

What will be out of GST? �  Levies on petroleum products �  Levies on alcoholic products �  Taxes on lottery and betting �  Basic customs duty and safeguard duties on import of

goods into India �  Entry taxes levied by municipalities or panchayats

�  Entertainment and Luxury taxes �  Electricity duties/ taxes

�  Stamp duties on immovable properties �  Taxes on vehicles


IMPACTS OF GST ON YOUR SUPPLY CHAIN

Sourcing •  Inter State Procurement may prove viable •  Opportunity to consolidate suppliers spread across India

Distribution •  GST will result in changes in both procurement and distribution arrangements

•  The current product flow will need to be re-examined and altered

Pricing and Profitability

•  The tax savings from GST will need to passed on to consumers, hence products need to be re-priced

•  Margins and Mark Ups would need to be reexamined

Cash Flow •  Excise Duty would be removed as a result cash flow will improve. GST is payable at the time of sale and not at the time of removal from the factory


IMPACTS OF GST ON YOUR SUPPLY CHAIN

Information Technology Changes

•  Changes to existing systems in terms of changes in master data, system design and re-customizations

•  Existing open balances and transactions need to be migrated to the new system

•  Changes to supply chain reports such as purchase register, sales register

•  Changes to forms such as purchase orders, invoices •  Need for training employees, educating customers


Illustration on Tax Credit

Supplier Input Cost

Value added

Sale price

Rate of GST

GST - output

Tax credit

Net GST payable

Manufacturer 100 30 130 10% 13 10 13-10 = 3

Whole seller 130 20 150 10% 15 13 15-13 = 2

Retail Seller 150 10 160 10% 16 15 16-15 = 1


Rates of Tax Ø  There with be a two-rate structure –a lower rate for necessary

items and items of basic importance and a standard rate for goods in general. There will also be a special rate for precious metals and a list of exempted items.

Ø  For CGST relating to goods, the States considered that the Government of India might also have a two-rate structure, with conformity in the levels of rate with the SGST.

Ø  For taxation of services, there may be a single rate for both CGST and SGST. It will be total of the rate as applicable under CGST & SGST.

Ø  Government is considering pegging the revenue neutral rate of GST at a rate between 18% to 22%. This represents the aggregate of CGST and SGST payable on the transaction.

V Ramaratnam & Company, www.vramaratnam.com

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Current Status of GST in India Ø The Government proposes to roll out GST from

April 1, 2016 Ø The Bill was approved in the Lok Sabha but did not

pass muster in the Rajya Sabha. It has now been referred to a select committee for scrutiny

Ø The select committee is expected to report to the Rajya Sabha sometime in July. The house can then approve the recommendations

Ø After both the houses of parliament pass the bill at least 50% of India’s 29 states have to approve the constitutional amendment.

Ø The bill has to finally be approved by the President of India


V. Ramaratnam & Company, Chartered Accountants, Chennai. [email protected] www.vramaratnam.com

THANK YOU!


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