GOODS AND SERVICE TAX.

IMPACTS, IMPLEmeNTATION & STEPS FOR

IMPLEMENTATION.

GST will impact every business and mostly, every transaction. Every supply of goods or
supply of services would be liable to GST.

Transactions which would be impacted due to

introduction of GST :-
Sale of goods/ provision of services The taxable event for the purpose of GST would be
supply, as against the current indirect taxes regime where the taxable events are varied over
the laws (e.g., manufacture, sale, provision of service, etc.). Every supply would be liable to
GST, in lieu of Central Excise, Value Added Tax / Central Sales Tax or Service tax. It will be
applicable for all sales in a business inventory, used capital goods/ unused capital goods,
scrap, services, et al.

Purchases The reverse is also true. Every purchase will be liable to GST, including
purchases from unregistered dealers or specific transactions which may be subjected to
reverse charge mechanism. More specifically, the concept of purchases would be expanded
by usage of the term, inward supply.

Imports All goods and serviced imported into India will be liable to GST, in addition to the
basic customs duty (in relation to goods). GST would be payable on reverse charge basis, and
will replace the countervailing duty and the additional customs duties under the current
structure.

Stock transfers Inter-unit transfers or branch transfers or stock transfers will be liable to
GST where such units/ branches are part of two different GST registrations, unlike the
treatment under the current tax structure. Currently, only the proportionate amount of input
tax credits need to be reversed however, the new regime will require payment of full GST
on stock transfers, allowing the receiving unit the full credit of GST paid thereon. While the
clarity on valuation of such stock transfers is awaited, it is expected that the normal selling
price / prevailing market price would be the basis.

FOC and warranty supplies Similar to stock transfers, FOC, warranty supplies and all
other non-monetary based supplies will also be liable to GST, where the supply is made for a
consideration. Where it can be proved that the free supply was made without any
consideration, input tax shall be proportionately reversed.

Barter/ Exchange Exchange of goods or services, not involving monetary payments will
also be liable to GST. The normal value of the goods or services exchanged is likely to be the
value for computation of GST.
Captive consumption It is largely expected that captive consumption would not be liable
to GST given that there is no supply.

Employee recoveries While all services provided by the employee to the employer when
made in the course of employment would be excluded from the purview of GST, all
recoveries from employees, for facilities such as food, conveyance, crche, hard furnishing,
soft furnishing etc., are expected to be taxable under the GST regime (or proportionate input
tax shall be reversed).

However, financial arrangements, penal transactions (payment of penalty) etc., would be

outside the ambit of GST.

The approach and implementation steps should be as

follows:

Form a committee of all the functional heads of the organization: This should involve all
departments and decision makers in business.

Not merely the finance, tax and legal departments, but it should also include, procurement,
distribution, inventory, logistics, manufacturing, information technology etc.

This would enable the teams to understand potential impact of GST and leverage from the
opportunities, it would provide.

Identify all the major and minor impact areas: The first task of the committee would be to
identify and list all the impact areas.

Broadly, this could be,

procurement,
pricing,
inventory policies,
head count and manpower planning,
accounting,
documentation,
agreement drafting,
manufacturing or warehousing locations,
cash flow management etc.

This would largely depend on the nature of business, geographical spread of operations,
volume of operations and the cycle.

Simulate the impact of GST on transactional data: Simply put, the real transactional data
may be considered as the base. The current tax laws and the GST should be super-imposed on
the same to study the impact of GST and comparison with the current structure. Thereafter,
each of the impact areas must be analysed and the tax cost should be determined for different
situations (alternatives).
Identify the most appropriate model:

The results of simulation process should be presented to the Committee for decision making.
Appropriate approvals for change in models should be obtained and documented. Areas
requiring representations should be identified and discussed with trade / industry bodies.

Plan the implementation process: It is important to plan, time and monitor the
implementation process. The plan should clearly outline the changes to be implemented in the
business processes,

communication protocols,
legal requirements to be addressed,
infrastructure re-alignment (man power, ERP changes),
knowledge management,
reporting protocols,
monitoring process etc.

Implement the plan: The detailed step plan should be implemented in thread bare and
continuously monitored.

Appropriate flexibilities should be factored for

external delays,
changes in assumptions,
newer developments on the legal side,
testing of ERPs,
training and industry positions.

The stake holder communication and reporting mechanism should be real time.

Compliances, once implemented:

The process should extend to cover compliances
knowledge management,
mapping of manpower requirements,
monitoring the progress on the assessments or litigation matters for the previous years under the
old laws and a real time reporting system for GST compliances.

Review of positions taken and implement changes:

Simulation of GST impact, decision making and implementation steps would have involved certain
assumptions and expectations. These assumptions and expectations should be revisited in the light
of newer developments, changes in the legal side, industry positions etc. Appropriate changes, as
may be required should be done to the business processes.

Implementation of GST
STEPS which can be initaiated before the law is available.

Normally, the impact analysis and implementation planning will be initated only after the law, or the
draft law is available .

However, is there anything which businesses should cope up with, even before the law is made
available?

Considering the law may be passed with effect from April 2017, it only leaves businesses with that
much lesser time to strategize, plan and implement GST in their businesses.

In most cases, the availability of law is a much to analyse the tax- impact on the businesses can, and
they should, identify pocket / areas where changes can be implemented or at least, where thr
ground can be kept ready for implementation of GST soon after the law is available.

Naturally, identifying and analysing such areas would depend upon the nature of business, spread
operations, volume of transactions etc.

Nevertheless, the following list of areas / operations may be used a start point by businesses to start
the GST planning and implementation process even before the law is available.

1. Review of the ERP framework.

TO make the skeletal changes and building the flexibility to inout / edit masters within a
short time.

2. Review of tax codes and the logics thereto in the ERP systems.
Initiate discussions to convert the same into CONDITION BASED LOGICS.
Illustratively, under the current systems , applying the tax or duty to a purchase / sales will
involve substantial manual intervention. This can probably be reduced to a CONDITION
BASED LOGIC wherein the system can prompt/apply the tax structure based on a function
of place of origin, place of destination, nature + status of supplier / customer and description
of goods.

3. Design a system that can help in comparing and reconciling the inward supplies auto
populated in the portal, with that of the records maintained by the entity.

4. Analyse the geographic spread reasons for opening branches, requirements of the
branches, businesses,businesses of each branch etc.

5. Analyse whether more than one registration within same state , would be benifical to the
entity, in case of different verticals of business.

6. Implement suggestive changes to the formats of various documents broadly,

The changes to the sales invoices,
Purchase orders,
Input credit registers,
 Accounting vouchers etc. Can be identified baaed on experience, discussions at various
forums and knowledge of the proposed GST. These changes can be implemented into the
ERP and tested.

7. Collation of base data and capture of the tax costs in current tax regime the same data
set of data should ideally be used for analysing the impact of GST and simulation of various
operations to determine and compare the tax cost and impact on supply chain under the
current tax regime and under GST.

8. Design and implement a knowledge management framework/platform to ensure

consistent, timely, speedy communication of decisions across various departments /
locations.

9. Form a GST committee for implementation of GST in the business.

10. Manpower planning- identify teams and allocate resources to GST as well as for managing
the current taxes even after GST is implemented.

11. Review of the terms of contract with all customers and vendors. initate preliminary
discussions with customers and vendors to amend the contracts for GST related clauses and
changes, policies for goods returns ( where sale / purchase is during the current tax regime
while the returns would be under the GST regime ) etc.

12. Build transitional flexibilities comprehensive captures of details relating to purchases and
inventories to enable smooth and easy transition of credits into the GST regime.

13. Put the audits and assements under the current tax laws on a fast track. complete audits
or assessments for the earlier years: strictly monitor use and filling of declarations or
statutory forms.( Eg: Form C, E1/E2, F, H, I under the CST Law).