will gst prove to be a game changer for auto sector · 8/4/2016 · concept of ‘transaction...

All Rights Reserved — EYET Auto Webinar 1

Will GST Prove To Be A Game Changer For Auto Sector ?

04 August 2016

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global LimitedFor discussion purpose only


GST – The Journey So Far….


The Journey So Far …..

Revised GST Constitution Amendment Bill tabled in the Lower House of Federal Parliament on 19 December 2014

Passage of GST Constitutional Amendment Bill in Lower House on 6 May 2015.

The Bill presented in Upper House on 12 May 2015.

GST draft law and rules is released in public domain in June 2016

GST Constitution Amendment Bill passed in the Upper House on 03 August 2016

GST

2015

GST

2014

GST

2016

Bill referred to Select Committee

Report of the Select Committee received and accepted by the Cabinet of Ministers


GST – The Road Ahead…


► Software for registration, return and payment ready as per Government

► Hardware supply to start soon

► CBEC, GSTN & States IT back-end likely to be ready by Nov 2016

► Testing of software with live transactions by January 2017

IT Infrastructure

► Training of central and state government officers on new law

► GSTN to provide IT training to officers

► Training modules to be prepared by Government for small traders

► Guidance notes on various modules to be issued for ease of understanding for businesses

Change Management

The Road Ahead….

► Approval of 16 State Legislative Assemblies

► Presidential Assent

► Setting up of GST Council

► CGST and IGST law to be cleared by Parliament and SGST laws by respective State Assemblies

Establishing Legal Framework

Dec - 16

Feb - 17

Mar - 17


Key Challenges

► Rate structure

► Exemptions

► Threshold limit

► Principles of apportionment of GST between States and Centre

► Forging consensus on model GST law

► Division of administrative control between States and Centre

► Smooth transition


Overview of GST in India


Current Indirect Tax System In India vs GST

Primary Producers

Distributors

Resellers

Service Providers

State VAT/ CST

Primary Producers

Manufacturers

Service Providers

ServiceResellers

Real Estate

Primary Producers

Distributors

Resellers

Service

Providers

CENVAT/Service Tax

Primary

Producers

Manufacturers

Service

Providers

Service

Resellers

Real Estate

Primary Producers

Distributors

Resellers

Service Providers

GST

Primary Producers

Manufacturers(less exclusions)

Service

Providers

Service

Resellers

Real Estate/

Petroleum


Proposed GST framework

►Centre and States to levy GST on common base (CGST & SGST)

Dual-GST

►Taxing principle shifts from origin to supply destination

Place of Supply

► Integrated-GST (IGST) on inter-state supplies / imports

►NIPFP initially recommended CGST+SGST rates of 12% for basic necessities & 27% for all other goods & services

►Extreme discomfort with these rates –NIPFP asked to rework based on latest revenue data; second report not yet made public

►CEA report suggests RNR of 17.5%-18.5%; recommendations not accepted by Empowered Committee

►Various rate options being considered:

► Single rate of 12% + Special rates

► Two rates of 12 & 18-22% + Special rates

►States to have powers to determine SGST rates within narrow band –different rates could make invoicing & compliances extremely complex

GST rates

Interstate supplies/ Imports

►Exemptions to be kept at minimum – Likely to be aligned with exemptions generally provided under VAT

Exemptions


GST credit mechanism

Taxes paid on inputs are available as credit against the output tax liability of each transaction

CGST

CGST

IGST

SGST

SGST

IGST

IGST

IGST

SGST

CGST


Why EY

Impact of GST on Auto Sector

All Rights Reserved — EYET Auto Webinar 12 Private and confidential – Restricted circulation only - Draft

Change in Excise duty and VAT/CST Structure

Duty structure on Manufacture of Vehicles under Current and GST Regime

Manufacture and sale of Vehicles

Current levies Proposed GST rate

Excise NCCDAutomobil

e CessInfra Cess VAT Total Tax CGST SGST IGST

Total Tax Cost

In case of

CGST +

SGST

In case of

IGST

Petrol, LPG and CNG Motor

Vehicles principally designed for the

transport of persons of a cylinder

capacity not exceeding 1200 cc and

length not exceeding 4000mm

12.50% 1.00% 0.125% 1.00% 14.5% 31.25% 10.00% 10.00% 20% 20.00% 20%

Motor cars and other motor vehicles

principally designed for the transport

of persons of a cylinder capacity

exceeding 1500 cc

27.00% 1.00% 0.125% 4.00% 14.5% 51.28% 14.00% 14.00% 28% 28.00% 28.00%

ILLUSTRATIVE


Component Manufacturers

► Increase in cash outflow on imported goods and services, as well as domestic services

► R&D Cess not likely to be subsumed – Additional cost

► Reduction in cost on inter-State procurement – IGST to be creditable

► Increase in cash outflow on interstate stock transfers from factory to warehouse due to IGST; valuation may also be a challenge

► Disputes with VAT authorities on concept of pre-determined sales to OEMs to go away

► No accumulation of SAD credits

► For after market, concept of MRP valuation for Excise purpose will go away

► Raw materials such as natural rubber may become more expensive

► Import under FTA vs Make in India


OEMs

► Ambiguity regarding GST rate structure

► Ambiguity regarding continuation of cesses – Auto Cess, NCCD, Infra cess etc.

► Increase in cash outflow on imported goods and services, as well as domestic services

► Reduction in cost on inter-State procurement – IGST to be creditable

► Reduction in cost due to enhanced credit pool for sales companies

► Concept of ‘transaction value’ retained in Model GST law; present challenges may continue under GST (eg – PDI charges, advertisement by dealers etc)

► Value added services to become costlier (extended warranty, AMCs etc) due to increase in tax rate on services

► Treatment of dealer incentive schemes and discounts etc need clarity

► No clarity on fate of MOUs signed by OEMs for grant of incentives/ subsidies by State governments


Dealers

► Increase in credit pool – GST paid to OEMs to be completely fungible against output GST on sales

► Cost on account of local services to reduce as GST will be creditable – However, higher GST rate on services may lead to increase in upfront cash outflow

► Point of taxation for sales may shift to receipt of advance payment from customers – adverse impact on cash flows

► Treatment of discounts to customers and exchange schemes etc needs clarity

► No clarity on the rate to be applied on ancillary services provided to customers such as PDI charges, parking charges etc.

► Free of cost service and goods provided to taxable persons to be liable to GST –Free servicing provided to company vehicles, tourist/ commercial vehicles etc.

► No visibility on GST treatment for used/ second hand vehicles


Service providers – Transporters/ 3PLs

► Current abatement under Service tax may not be there under GST, making services more expensive

► Liability to pay GST may be on forward charge basis

► In case payment of GST is on forward charge basis, possibility to claim credit of GST paid on purchase of vehicles, spare parts as well as input services

► Cash flow may increase on input services – repair and maintenance of fleet etc due to higher rate of GST

► Fuel kept out of GST purview for the time being – may lead to cascading of taxes

► Services may be received during transit in various States – toll etc. Whether credit of GST on such services can be claimed?


Questions?

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2015 EYGM Limited. All Rights Reserved.

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2016 EY LLPAll Rights Reserved.

will gst prove to be a game changer for auto sector · 8/4/2016 · concept of ‘transaction...

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