Introduction of GST in India is going to be big boom
for domestic IT industry. Tax software will need changes to handle
tax credit feature introduced by GST. For export of goods or services
there will be GST at the rate of 0%. This is going to impact on
Inter-Company transactions setup done in existing Oracle EBS and Hyperion and
all tax related setup.
Companies will have to create new account to keep track of GST
related transaction. Lot of
existing central and state taxes need to be end dated and changes need to be
done in tax rules for items which are tax exempt. Petrol, alcoholic liquor for human consumption will
still have all the taxes but no GST. Tobacco and tobacco products
would be subject to GST. In addition, the Center could continue to
levy Central Excise duty and the States to levy sales tax / VAT.
Abolition of Octroi will reduce lead time for procurement. That
will trigger some changes into Oracle EBS such as updating lead time
and replenishment of stock level. Companies might reduce there
number of warehouses because of tax saving and increased supply
chain efficiency.
Government has created a Goods and Service Tax Network
(GSTN), the quasi-government company ( http://gstn.org/) and is
in the process of finalising the tender for selecting a managed service
provider an IT firm to which a majority of the
mandate will be outsourced.
Read More:
http://www.business-standard.com/article/economy-policy/gst-to-snap-up-it-talent-from-the-pvt-sector-114121900421_1.html
This generated my interest into learning more about GST and result
of that is this blog post.
Goods and Service Tax (GST) is India’s biggest indirect tax
reform since 1947.
Finance Minister Arun Jaitely of Modi government tabled the
Constitution Amendment Bill 2011, or GST Bill in parliament on 19-Dec-2014.
GST Bill seeks to amend the Constitution to allow for the introduction of
a uniform, national goods-and-services tax. The implementation of GST has been
opposed by some states because they are reluctant to surrender their right to
impose such taxes. In particular, some have objected to the inclusion of
petroleum products and liquor–major sources of revenue–in the proposed
GST. The government aims to bring the tax into effect from April 1, 2016.
Change in Mindset because of Tax Credit
Under the GST structure, every company gets a deduction on the
taxes already paid by its suppliers. That results in every buyer
ensuring that his supplier has paid his part to claim his deductions. This
will be big mind set change in doing business in India to reduce leakage in tax
collection. This will be big relief for tax payer and tax collector. The
key is setting right GST rate.
Best source to get latest information on GST is
1. http://gstindia.com/news.php
2.
http://qz.com/317108/the-complete-guide-to-understanding-indias-biggest-tax-reform-the-gst/
3.
http://blogs.wsj.com/indiarealtime/2014/06/18/is-india-ready-for-uniform-goods-and-services-tax/
4.
http://www.cbec.gov.in/deptt_offcr/gst-status-18032014.pdf
5. http://profit.ndtv.com/videos/news/video-standard-rate-in-gst-could-be-27-ey-349492
6. http://www.moneycontrol.com/news/business/gst-will-lead-to-lower-costs-benefit-supply-chain-biz-tci_1258319.html
There is lot of material available to read but still lot of things
are not clear.
Positive Impact on Big Manufacturing Sector
Abolition of Octroi will help to keep factories in the state Reduction is overall tax rate if GST
is less than 26%. GST will make products competitive in domestic and
international market.
Abolition of Octroi will help improve supply chain efficiency.
Negative impact on Small companies and unorganized sector
Companies with a turnover of Rs 10 lakh (currently Rs 1.5 crore)
will have to pay GST.
Negative Impact on Service Sector
At present Manufacturing sector pays lot higher in taxes to
government because of cascading effect of Indirect taxes. Manufacturing
Sector burden will go down if GST is introduced at the rate between
19% to 22%. But at present Service sector pays close to 12% tax and there
burden will increase drastically. How it will impact on Service is still not
clear.
Banks and Hotel Industry, Warehouse companies will have to change
their accounting rules to treat GST's credit facility. They will have to take
GST credit from states.
Accounting Rules for Bill_To and Ship_To in different states
There are 3 component in GST. Central GST ( CGST), State GST
(SGST) and Interstate GST (IGST). CA.P.J.Johney
has explained all these taxes very nicely in his YouTube video.
https://www.youtube.com/watch?v=VXGc-wY2WqM
Some of the unanswered questions he has raised that if Bill To
Party is in one state and Ship To Party is in different state then who will pay
the GST? If SGST is different in both state then it will add more complexities.
Accounting rules for such transactions are still not clear.
Impact on decision maker to setup new factory location
GST would be a destination based tax as against the present
concept of origin based tax. In new system if it is B2B transaction then
credit will be available to retailer or manufacturer and SGST will go to
destination state.
In new environment states will not be able to offer tax incentives
or exemption to setup new factory. If new factory needs to be
setup decision maker need to see cost factor and supply chain cycle.
As per Vineet Agarwal, MD of Transport Corporation of
India, GST being a consumption tax, it would mean that today let’s assume
that there is a company which has five production units and maybe 25 warehouses
across India because of saving tax, saving the central sales tax they will
start reducing these numbers of warehouses, so instead of 25 warehouses they
might have 15 warehouses. Therefore, the distribution matrix will change from
five factories to 15 warehouses which would essentially mean that the size of
these warehouses will increase essentially reducing the overall inventory but
concentrating that inventory at several locations. So a lot of changes will
come from supply chain perspective for manufactured products with GST coming
in.
Impact on State Governments
The Center will
compensate the states for loss of revenue arising on account of implementation
of the GST for a period up to five years. However, the compensation
will be on a tapering basis, i.e. 100% for the first three years, 75% in the
fourth year and 50% in the fifth year. Once 5 year loss of revenue compensation
period is over then rating agencies will rate the states based on their revenue
collection at that time. If rating goes down it will be difficult for state
government to raise money at cheaper rate.
Good news is state's tax collection from service sector will
improve drastically.
GST would be a destination based tax as against the present
concept of origin based tax. At present states which has lot of
manufacturing facility collects larger tax. In new system state with larger
consumption will collect more tax. e.g if Maharashtra is biggest consumer of
goods and services will collect larger tax. States which of tax incentives to
setup new manufacturing facility will go away in new system. To attract new
manufacturing they will have to provide good infrastructure, cheaper land and
electricity.
Abolition of Octroi will help to keep factories in the state.
There will be levy of an extra 1% origin-based levy on interstate
transaction for 2 years. Set-offs will not be available against this extra
levy, the proceeds of which will be collected by the Center and
assigned to states from where the supply originates.
Impact on Central Government
Till now there no news which will impact Central
Government negatively. GST would apply to all goods and services
barring a few to be specified. Because of wider tax collection base
revenue is going to increase for central government. Higher rate will kill the
economy but that chance is very low because we have very smart prime minister
at the center.
Import of goods or services would be treated as inter-State
supplies and therefore, would be subject to IGST in addition to the
applicable customs duties
Central Board of Excise and Customs will have to change their
software to handle collection and credit system and get ready to handle for
increased number of tax payers.
Impact on Citizens
Prices of manufactured goods will go down and that benefit will
get pass to consumer. Prices of some service sector will go up.
GST more or less equalises taxation across products, and hence may be iniquitous. For example, currently center and states can levy higher taxes on luxury goods and services (five-star dinners, cars above a certain size) and this is fair. Once GST kicks in, all goods and services may end up paying the same tax. This means the rich who buy luxury goods may pay less tax and the poor more than they should. This goes against the basic tenets of taxing the rich more and the poor less.
Read more at: http://www.firstpost.com/india/5-reasons-gst-may-cracked-1857539.html
The Goods and Service Tax Network (GSTN), the quasi-government company tasked with building the
technology backbone for the long-pending indirect tax reform, is looking to
hire technology professionals from companies such as Infosys, Wipro, Accenture and
others.
Truck drivers will be able to deliver goods faster and resulting
more revenue to them.
To summarize this if GST rolls-out at attractive rate, it will be a big boost to India's domestic market.
