GST

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Overview - GST

 The Goods & Service Tax Bill or GST Bill, officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax to be implemented in India.

 Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments.

 Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity.

 Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer.

 Administrative responsibility would generally rest with a single authority to levy tax on goods and services.

 Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.

 The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India.

 Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market.

 The simplicity of the tax should lead to easier administration and enforcement.

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 From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%.

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Why do we need GST?

Despite the success of VAT, there are still certain shortcomings in the structure of VAT, both at the Centre and at the State level.

Justification at the Center Level

 At present excise duty paid on the raw material consumed is being allowed as input credit only. For other taxes and duties paid for post-manufacturing expenses, there is no mechanism for input credit under the Central Excise Duty Act.

 Credit for service tax paid is being allowed manufacturer/ service provider to a limited extent. In order to give the credit of service tax paid in respect of services consumed, it is necessary that there should be a comprehensive system under which both the goods and services are covered.

 At present, the service tax is levied on restricted items only. Many other large numbers of services could not be taxed. It is to reduce the effect of cascading of taxes, which means levying tax on taxes. Justification at the State Level

 A major defect under the State VAT is that the State is charging VAT on the excise duty paid to the Central Government, which goes against the principle of not levying tax on taxes.

 In the present State level VAT scheme, Cenvat allowed on the goods remains included in the value of goods to be taxed which is a cascading effect on account of Cenvat element.

 Many of the States are still continuing with various types of indirect taxes, such as luxury tax, entertainment tax, etc.

 As tax is being levied on inter-state transfer of goods, there is no provision for taking input credit on CST leading to additional burden on the dealers.

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Present Tax Structure Present Tax

Structure

Excise Duty

Excise Duty Taxable event is Manufacture Taxable event is

Manufacture Service Tax

Service Tax Taxable event is provision of Service Taxable event is provision of Service Sales Tax / VAT / CST Sales Tax /

VAT / CST Taxable event is SaleTaxable event is Sale

Customs Duty

Customs Duty Taxable event is Import & Export

Taxable event is Import & Export

Entry Tax

Entry Tax Taxable event is Entry of Goods

Taxable event is Entry of Goods

Intra State Taxable supplyIntra State Taxable supply Excise & Service Tax will be known as CGST Excise & Service Tax will be known as CGST

Local VAT & other taxes will be known

as SGST Local VAT & other taxes will be known as SGST Inter State Taxable supply Inter State Taxable supply CST will be known as Integrated GST (IGST) CST will be known as Integrated GST (IGST) Approx. Sum total of CGST & SGST Approx. Sum total of CGST & SGST Import from outside India Import from

outside India Custom DutyCustom Duty

In Place of CVD & SAD, IGST will be charged In Place of CVD & SAD, IGST will be charged

Present Indirect Tax Structure of India

Proposed Indirect Tax Structure of India

Features of GST

 Destination based taxation

 Apply to all stages of the value chain

 Apply to all taxable supplies of Goods & Services made for a consideration except –

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o Transactions below threshold limits

 Dual GST having two concurrent components – o Central GST levied and collected by the center o State GST levied and collected by the states

 CGST & SGST on intra-state supplies of goods & services in India

 IGST (Integrated GST) on inter-state supplies of goods or services in India – levied and collected by the center. IGST applicable to:

o Import of goods & services

o Inter-state stock transfers of goods & services

 Export of goods & services – Zero rated

 Additional tax of 1% on Inter-state taxable supply of goods by state of origin and non cenvatable

 Tobacco Products under GST with Central Excise duty.

 Optional threshold exemption in both components of GST

o All goods & services likely to be covered under GST except : o Alcohol for human consumption – State Excise plus VAT o Electricity

o Real Estate – Stamp Duty plus Property Taxes

 Petroleum Products (to be brought under GST from date to be notified on recommendation of GST Council)

o GST Rates to be based on RNR (Revenue Neutral Rate) o Merit rate for essential goods & services

o Standard rate for goods & services in general o Special rate for precious metals

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Taxes Subsumed under GST Excise duty Service Tax CST Local VAT Local Entry tax / Octroi Local Cess & levies CVD/SA D Luxury Tax Taxes to be subsumed

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Taxes not to be Subsumed under GST Basic Custom Duty Export Duty Termina l Taxes Stamp duty Land & Building tax Electrici ty Tax on Vehicles Tolls

Taxes not to be subsumed

Understanding GST

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Supplier Sells Raw Material: Supplier collects GST on the value added at the first stage (sale of raw materials) and remits the tax to government

Manufacturer Sells Finished Goods: Manufacturer collects GST on the value added at the second stage (raw material converted into finished goods) and remits to the government

Retailer Sells Finished Goods: Retailer collects GST on the value added at the third stage (sales of finished goods) and remits to the government

Consumer: Customer pays GST on the value of finished goods which is the sum of the value added in the first to third stages.

Cost + GST Selling Price GST Output Tax (16%) Tot al GST Input Tax Net GST Payable Material Supplier - 100 16 116 0 16 Manufactur er 116 300 48 348 16 32 Wholesaler 348 500 80 580 48 32 Retailer 580 700 112 812 80 32

Consumer 812 Final Consumer pays the GST 112

SAP Solution Approach

Pre-Requisite

 Tax Procedure - TAXINN

 Minimum Support Pack Level – Refer SAP Note no. 1175384

SAP APPL Release Support Pack

SAP ERP 6.0 (600) SP 26

EHP2 for SAP ERP 6.0 (602) SP 16

EHP3 for SAP ERP 6.0 (603) SP 15

EHP4 for SAP ERP 6.0 (604) SP 16

EHP5 for SAP ERP 6.0 (605) SP 13

EHP6 for SAP ERP 6.0 (606) SP 14

EHP6 for SAP ERP 6.0 for HANA (616-SAP

HANA) SP 08

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GST Areas of Impact

Tax Registration: Define GST Registration levels GSTIN – GST Identification Number

 Single registration for CGST, SGST & IGST

 Individual registration to be obtained in each state of business establishment

 PAN based registration number – Up to 15 characters in length Capture GST Registration at Business Place Level

Business Place wise G/L Account Determination

Master Data Maintenance: Business Partner Tax Data, GST Accounts Business Partner Tax Data

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 GST reg. no. to be captured for each registered customer & vendor GST Tax Accounts

 Separate tax A/P and A/R accumulation might be required at GST registration level.

 To be defined for CGST, SGST & IGST separately Vendor Master

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Customer Master

Tax Configuration & Computation: Configure Tax & Pricing Procedures; Tax Computation

Intra-State transactions

 CGST & SGST applicable Inter State/Import transactions

 IGST applicable Export transactions

 Zero rated

Region level rate variations may exist

New condition types/access sequences and account determination Tax Procedure – New condition types

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SD Pricing Procedure – New Condition Types

Document Numbering: Outgoing Invoice Numbering Unique sequential numbering for outgoing GST invoicing

 Critical for legal numbering may be specified by govt.

 It could be for example: o Registration level o Document type o Combination of both

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Maintain Document Class

Assign document class to document types

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Business Process Localization: Extend Support to currently localized Business Processes

Sales:

Sales - Sales Order

Sales – billing document

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Purchase:

Purchase – Purchase Order

Purchase – Vendor Invoice

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Stock Transfer:

Stock Transfer – Purchase Order

Outgoing GST Invoice Accounting Entry

Outgoing GST invoice with receivable

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Incoming GST Invoice

Incoming GST invoice with Payable

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Subcontracting:

Sub-Contracting Purchase Order

Sub-Contracting Purchase Order Components

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Sub-Contracting Purchase Order – Taxes Transfer Posting Outgoing GST Invoice `1 `1 `1

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Outgoing GST Invoice with receivable

Sub-Contracting - Goods Receipt

Incoming GST Invoice

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Incoming GST Invoice with Payable

GST Tax Posting:

 Separate accumulation of credit and payables for CGST, SGST & IGST

 Separate accumulation at Registration level

 Automatic Tax posting to respective accounts from business processes

GST Tax Posting - Billing A/R Accounting Document `1

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GST Tax Posting - Vendor Invoice Accounting Document

Utilization: Input tax credit utilization against payable for GST taxes

 Input CGST to be utilized against output CGST & IGST

 Input SGST to be utilized against output SGST & IGST

 Input IGST to be utilized against output IGST, CGST & SGST in the order of IGST, CGST and SGST

Utilization to handle GST `1

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Cross Utilization as per GST rule

Reporting - Tax Register

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Cut Over & Challenges

Migration Activities

 Business Place Settings

 Tax & Pricing Procedures

 Tax Codes

 GL, Vendor & Customer Master

 Open Purchase & Sales Order

 GL & Tax balances What is changing?

SAP MM (Procurement to Pay)

 Material & Service Master

 Purchase Order, Invoices

 Subsequent Credit / Debit Notes

 Purchase Info Records SAP SD (Order to Cash)

 Sales Order, Invoicing

 Distribution Channel & Sales Area

 Pricing (Types of conditions)

 Billing Schedules, Delivery

 Debit / Credit Notes SAP Financial Accounting

 Accounts Payable & Receivable

 Invoicing (Non PO)

 Master Record Management

 Billing (Non SO)

 Petty Cash

 Invoicing & Credit Notes

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SAP HCM & Others

 Employee Benefits

 Travel & Expenses

 FI, SD & MM Reports

 Statutory reports

 Vendor, Customer forms & reports

 GL Account reports Key Challenges

 Penalties for delayed submissions & returns

 Complex rules for special condition (Cross border services, Transition rules)

 Interfaces & SAP customizations – Additional challenges for GST enablement

 Regression testing of SAP & all connected systems

 Managing transition scenarios such as Taxable goods / Services sold before GST effective date & returned on or after the effective date

GST

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