Understanding GST Compliance - EY India

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This document by EY India talks about the impact of GST on Businesses in various departments like Advocacy, Supply Chain. Accounting & Reporting, etc. Know more about “Getting GST ready” which is a ready reckoner from EY to help identify business impact areas and how you should plan for GST.

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Getting GST ready

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The Goods and Service Tax GST is one of the most signifcant tax reform post- independence and has rightly attracted heightened interest from all stakeholders. It is expected to replace our current complex Central and State indirect taxes to create a common market for India with a seamless indirect tax regime. The country can expect to have three types of GST namely Central GST State GST and Integrated GST within the GST credit chain. Furthermore an additional 1 origin tax on supply of inter-state goods outside the GST credit chain. GST is expected to provide a signifcant boost to investment and growth of the economy. The growth can be achieved with reduced capital cost creating increased capital stock and also through improved resource allocation driving increased total productivity and competitiveness. A right design of GST with broad base and moderate rates will help reduce the cascading and will be an excellent enabler for the “Make in India” theme. One of the biggest challenges for the industry is to understand the enormity of GST. While the Empowered Committee of Finance Ministers on GST feels confdent with the progress and action plan of GST Network Company GSTN the required IT platform is expected to be ready by the time GST is introduced industry needs to be equally prepared for the big transition. The big overhaul will affect how the companies operate their businesses presenting signifcant opportunities for long-term revenue and margin improvement. GST will be transformational and the implication on the industry extends well beyond Tax. It will affect every part of business right from Financial Reporting Tax Accounting Supply Chain technology enablement and contracts redesign. Training people within the company and its business eco-system will be fundamental for the readiness for the new regime. The transition would have to be managed in a phased manner wherein companies would have to start by understanding key areas of impact in their business and prepare different scenarios for the design and application of GST. Business cases on changes would have to be developed with the impact of change on revenues and margins. Implementation of changes would have to be managed through robust program management on various work-streams across the value chain of operations. To enable a successful implementation a common ground would have to be identifed to bring together various stakeholders for a common cause. The inter-dependencies need to be identifed upfront at project initiation and plans to put in place to manage them. “Getting GST ready” is a ready reckoner from EY to help identify business impact areas and how you should plan for GST. Overall companies will need to build and run a program that will provide the “serenity to accept what they cannot change the courage to change what they can and the wisdom to know the difference”. GST is offering an opportunity to transform and improve the way we do business and to make the most of this opportunity it is imperative for the industry to start Getting GST ready. Harishanker Subramaniam Partner and National Leader Indirect Tax Services EY Neel Kamal Goyal Partner Advisory Services EY Foreword

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Business Impact Advocacy Indirect tax impact assessment Supply chain Accounting and reporting Technology refresh Program management Change management and training Compliance  Rate of tax  Time place of supply  Treatment of current incentives  Valuations Indirect tax impact assessment GST Navigator for:  Revenue stream  Procurement stream  Costing pricing and working capital  Availability of credit of GST incl. transitional credits  Operating model  Sourcing  Distribution  In-house v/s outsource  Supply chain processes  Working capital  Contracting  T ax credits payments and accounting  change assessment in accounting entries incl. revised chart of accounts compliance with Indian Accounting standards etc.  Risks controls  System changes – ERP EI tools other technology tools  Compliance – with GSTN requirements  Getting systems ready for audit  Automation  GST registrations  T ax credit transitions  Return reporting  Other statutory compliances  Managed/ Shared Services  Program planning  Governance forums  Deliver communications  Drive project delivery  Quality assurance  Program integration  Budget management  Enabling business engagement  Facilitating business readiness 1 2 3 4 5 6 7 8 GST Business Impact GST Business Impact 4 Getting GST ready

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Advocacy Our differentiators • Global experience and network strength • Regular and constructive engagement with Centre and State governments industry bodies and think tanks • Team led by Satya Poddar renowned GST guru with global experience Dr . D.K. Srivastava leading economist was part of several Finance Commissions Venkatesh Narayan former Revenue offcial The GST will be the most signifcant tax reform in the fscal history of India. It will have an impact on prices business processes investments and proftability in all segments of the economy. It will also entail a fundamental shift in the way tax policies are made in the country. It is important for businesses to understand the impact of the proposed change work collaboratively and be heard. GST impact areas - EY Advocacy • Treatment of State incentive packages • Impact of non-creditable 1 origin tax on inter-state supplies of goods • Products to attract lower GST rates • Exemption of GST on imports / domestic procurements • Refund / Exemption of 1 additional tax • GST rates • Exemption of GST on imports / domestic procurements • Place of supply rules to determine export of services • High seas sale / in-transit sales – Treatment under GST EY is rightly placed to help you develop understanding and visibility and also make representations to get your voice heard. Objective An integrated approach to enable GST advocacy and policy representation powered by detailed analysis Know where you stand and where you need to go • Assess the impact of policy changes • Develop alternatives/ feasible options acceptable to government • Quantify their revenue and economic impact • Develop comprehensive understanding of the opportunities for change to the law by which proposals could be implemented Improve competitiveness and long-term economic viability • Develop proposals • Assess your competitive position • Prepare detailed cost-beneft analysis of proposals Make policy views known heard and understood • Establish connect and make representations to the government • Effectively engage with relevant offcials to be able to address policy makers’ concerns arising through the process • Develop a consensus and build effective coalitions to bolster your position • Effective communications campaign GST advocacy approach 5 Getting GST ready 1

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Indirect T ax impact assessment GST Navigator 2 Objective The GST Navigator works on the GST engine which uses a combination of tax codes and conditional processing of data. The orthodox methods of tax impact assessment provides only high level analysis and decisions based on such results may pose signifcant risks for the organization. EY uses GST Navigator and deploys a robust methodology for assessing the tax impact in “as is” and in “simulated” scenarios enabling you to optimize key business decisions. EY has developed a Proprietary T ool - ‘GST Navigator’ to assess and simulate business impact in the GST environment. It focusses on taxes payable credits pricing and margin impact and cash fow considerations. This will drive key business decisions on operating model changes required to optimize tax outcomes. T ax payments T ax impact analysis Products and pricing Business location consolidation Procurement patterns Customer segments Current regime Monthly analysis GST regime as-is Location wise analysis GST regime simulated business Product/ division wise analysis Benefts to users • Early assessment of tax impact of the change with ease of future refresh as the regulations evolve • Reports offer multiple drill-downs providing high quality analytics • Clients are using the output of the GST Navigator for: Profle of the companies who should adopt it • Manufacturers with supply chains in multiple states • Large scale importers and traders • Service providers with presence or client base across multiple states • Mixed supply providers developers/project owners and works contractors Advocacy - Determine what is adversely impacting at a policy level that can be then represented to the Government companies are able to identify validate and back up their claims of impact Pricing proft loss and cash fow impact - Understand the internal impact of GST from a product pricing stand point credit fows lost credits higher/ lower taxes impact on distribution supply chain and on secondary sales distributors and retailers Strategic - Understand opportunities or threats likely to be posed by GST the potential impact on supply chain the potential impact on vendors and change in impact on alternate supply chain scenarios to optimize the impact of GST

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Supply chain Objective Assess impact of GST on supply chain network process Develop supply chain operating model to suit the GST regime Supply chain touch-points Network Contract management Working capital Process T echnology People Structure it right • Sourcing locations incl. domestic v/s imports • Manufacturing locations Own plants contract manufacturers • Setting up warehouses RDCs/Depots • Distributors • Customers Contract it right • Buy side sell side and internal contracts • Goods services and composite contracts • Geographies central/ state • Long term or short term contracts • Contracts under auto- renewal Plan it right • Inventory management • Cash fow management • Costing and pricing of products Do it right • Purchase to pay • Order to cash Leverage technology • ERP Master data and transaction data inputs • Planning solutions • Applicable taxes by entity/ process Make people change ready • Re-design of supply chain organization structure • Train people on changes Use of right tools is work half done • Supply chain rapid assessment tool • Network optimization tool • Center of gravity model • Business case template • EY’s replenishment toolkit • Inventory optimization tool Implementation oriented work products • Impact assessment document • Optimized network structure • Re-modelled SC processes • IT reconfguration charter • Implementation plan • Training material GST will impact the entire value chain comprising of the major industries irrespective of the sector . It will impact the entire value chain of operations namely procurement manufacturing distribution warehousing sales and pricing. 7 Getting GST ready 3

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Accounting and reporting Key goals for GST Transformation EY Proprietary T ools • Internal Controls Manager • PMO tools • EPC Tool • Compliance Manager • Process Depots EY Enablers • Proven industry expertise • Collaborative approach • Subject matter expertise • Performance transformation focus • Single Modular Methodology EY will deploy multi competency teams Expertize on accounting standards/ principles sector and functional understanding to facilitate companies to comply with statutory changes while supporting in process readiness. Compliance Ready Secure business interests through complying with the new / evolving GST regulation. Harmonize Operations Standardize standard operating procedures to adapt to and be successful in the new regulations environment/ business model. Seamless Business Integration Synchronize the systems with the new processes and functions to integrate information from multiple sources and derive sharp insights on the reporting and accounting framework. Improve Partner Experience Enrich the business partners’ experience vendors/ dealers/ distributors / consignment agents etc. staying true the company brand promise. Enhance Employee Experience Get employees onboard the new systems processes and controls environment to enhance business synergy to augment growth. EY’s role Help you defne the compliance management framework in light of new GST regulation. EY’s role Help you assess the ‘As- Is’ scenario and develop ‘To-Be’ procedures / reporting accounting framework in line with the new regulations and industry/geography benchmarks. EY’s role ‘Post- Implementation’ process audits to assess the integration between new systems processes and functions. Also review the reporting MIS. EY’s role ‘Third Party Reviews’ focused around contracts processes and systems to assess readiness to change per new regulations environment. EY’s role Workshops with employees on Roles Responsibilities Controls KPIs Reporting Integration and Compliance. 1 2 3 4 5 Objective To design document ‘To-Be’ processes incorporating GST implications accounting changes and key control activities 8 Getting GST ready 4

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Technology refresh Objective Leverage technology to support compliance and smooth transitioning from the current to new GST regime Use of right tools is work half done • Process templates • Unit and integration test script templates • Functional and technical specifcation templates • Confguration document template Implementation oriented work products • Business blueprint • Validation reports • Confguration document • Training material Comprehensive solution framework developed by EY to meet requirements of the proposed GST regime from ERP application perspective. T echnology refresh ERP reconfguration Integration with other areas Deployment of enterprise intelligence tools GSTN Compliance Support smooth transition Re-design solutions landscapes and confgurations to cater to the new GST requirements Make right decisions faster Enabling technology to help drive analysis and facilitate decision making in the GST environment Support compliance • SAP Certifed reports • Pre-tested solutions • Templates and other enablers Make it work as one unit Integration with: • Supply chain • Compliance requirements • Processes • Customers and vendors 9 Getting GST ready 5

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Compliance Enabling transition by adhering to various compliance requirements and setting up systems and controls to ensure GST compliance Design of GST compliance framework and standard operating procedures covering various aspects such as: • Registrations • Invoicing • Computation of tax credits/set offs • Filing of returns • Payment of taxes • Maintenance of statutory records • Work programme for verifcation of compliance Delivery considerations • What controls or checks should be taken to drive accuracy of GST returns • How should the relationships with IT Finance and other business units be managed • What framework should be put in place to facilitate training of staff to handle GST related roles • Who should own the responsibility for updating process documents/ manuals Key compliance requirements on introduction of GST . Compliance Migration of registrations - PAN based taxpayer identifcation number Reporting of accumulated credits New formats of invoices waybills returns/challans etc. Rate change to be implemented Statutory forms – likely to be discontinued Redesign IT Systems Periodical returns Manner of computation and payment Classifcation of goods and services Objective 10 Getting GST ready 6

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Program management Objective Seamless Orchestration and Management of GST projects for successful program delivery Use of right tools is work half done • Program Change Management tool • Program Performance Centre Tool • Stakeholder Management Tool • Reporting Analytics Tool • Program Governance Communication Guide • Program Value and beneft Assessment Tool • Quality Assurance Tool • Program Financial Management Tool Implementation oriented work products • Program Communication Matrix • Program Performance reporting and Executive Dashboard • Program Stakeholder Assessment Matrix • Program RAID Matrix • Program Financial Analysis EY will use proven program management Tool Kit to facilitate rapid effective program start-up and ongoing management. Program Management Framework Execution Process tools frameworks – Program management tools designed such that most pertinent metrics are captured at regular intervals and feedback is received Quality risk controls – Well defned escalation matrix and review mechanism to drive high quality and manage risks in a timely manner Planning Governance - Organizations have to put in place the right governance mechanism which can drive effcient and effective execution Resources - Resource must be allocated so as to form cross functional teams and drive ownership and different levels of the organization Vision and direction Strategic business case - Need for conducting the program and visibility of high level potential benefts for the organization documented Sponsor Commitment - Long term execution commitment of internal teams including the project sponsor to drive sustainability of the program Measuring and monitoring Reporting – Robust mechanism for estimation of beneft of the exercise and communication of outcome to all stakeholders Beneft realization – Defning achievable and measurable beneft targets at the start of the program and achieving targets as per timelines Business acceptance Change vision leadership alignment – Alignment of leadership to drive execution of the program Stakeholder engagement and communication – Timely fow of information for approvals and execution across levels of the organization Balancing and optimization Reporting Planning and creation Stakeholder management Bene fit realization Portfolio management Portfolio management Portfolio management Portfolio management Portfolio management Complex Program Management Framework Execution Measuring and monitoring Vision and direction Business acceptance Planning Process tools frameworks Reporting Governance Sponsor commitment Stakeholder Change vision engagement and and leadership communication alignment Quality risk and control Bene fits realization Resources Strategic business case 11 Getting GST ready 7

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Change management and training Objective Managing change such that there is minimal disruption to business. Training employees on changed process and technology Use of right tools is work half done • People change impact assessment tool • Change visioning guide • Case for change guide • Stakeholder management and communication template • Training plan development tool • Training needs assessment guide • Training strategy guide • Change readiness assessment guide tools Implementation oriented work products • People change impact assessment • Change visioning and case for change • Training strategy and delivery • Change readiness assessment before roll-out EYs Business Readiness framework provides a robust methodology for managing a GST change. Note: Only those levers which are relevant to the GST context are highlighted in above framework Business readiness Business engagement Relentless execution Relentless inclusion Facilitate people readiness for the change through structured and timely assessments Understanding the people impact of the changes Training professionals to facilitate business readiness Update policies and procedures to facilitate smooth transition Revamping the structure for fnance supply chain organizations etc. Regular training update and timely feedback sessions Sustained communication and review cycle Creating a network of change champions across the organizational hierarchy to facilitate change Engaging and informing all key stakeholders throughout the program lifecycle Getting adequate leadership support for the program’s success Creating a long term vision and case for change Building a clear roadmap for managing the change Business readiness management Change Procedures impacts and policies analysis Training and Organisation Talent Deployment development design management and post go Live support Culture and leadership Stakeholder engagement and Vision and case for change Engagement journey planning and management communications 12 Getting GST ready 8

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Planning for GST — Part 1 Smooth transition in to new GST regime would require: • Transition roadmap preparations • Change in business processes to align to the new tax regime • Update of various software solutions across all locations to meet the proposed structure • Training of all personnel on new processes Furthermore transition has to be managed in a phased manner comprising of: Impact area identifcation Change assessment Design blueprint for future Implementation of change and testing Post implementation journey • Identify areas of impact across the value chain of operations • Assessing GST impact on ‘AS IS’ business models • Assessing GST impact under identifed business scenarios • Developing business case for change • Design future state GST ready organization comprising of processes technology and people aspects • Develop migration and transition plan • Roll out of proposed changes • Communicate changes to internal and external stakeholders • Conduct compliance testing and quality assurance • Compliance management • Training and change management This approach will enable businesses to undertake an effective transition programme for the implementation of GST . This will facilitate review of relevant areas of the business and resolution of issues therein. 13 Getting GST ready

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Core functions Financial / compliance reporting Planning Systems architecture Invoicing Recording of transactions Reporting of GST Accounting Compliance Controversy and Audit Organizations are taking a fresh approach to this important part of the fnance function to drive effciency control and value. Appropriate compliance checks must also be in place. An effective GST function must be able to identify and control all the relevant data needed for accurate reporting throughout the end-to-end process from basic information about suppliers customers and transactions through to completion of the GST return. 1. What are the typical large-scale transactions 2. What is the process for recording purchases to pay orders to cash and inter-company transactions 3. What measures are in place for accurate and timely submissions for GST returns and payments 4. What is the process for dealing with GST regulations audits 1. How many operating systems need to be GST sensitized 2. Are billing systems capable of raising GST- compliant invoices 3. Are the existing billing systems able to record inter- company GST transactions 4. What is the best method for extracting data from the ERP systems for reporting purposes Checkpoint questions on core IT compliance functions 14 Getting GST ready Planning for GST — Part 2

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Key imperatives for businesses Challenges in GST implementation Creating awareness Effective change assistance Integrating multiple applications Inter-dependencies between project streams Large number of stakeholders Time sensitive Awareness programs have to reach key stakeholder such as suppliers distributors and internal stakeholders. They have to be kept informed of the plan and progress on the implementation of this company wide initiative. It would be critical for the relevant process owners and managers to effectively manage the change attributed to GST implementation in their day to day activities. There are multiple systems and modules at various stages of readiness that would have potential impact by this GST implementation. Therefore interfaces between these multiple systems / applications have to be identifed developed and tested The inter-dependencies need to be identifed upfront at project initiation and plans to put in place to manage them. There should be continuous monitoring to identify new inter-dependencies as the project progressed. Different stakeholders may have vastly different interests and agendas. A common ground needs to be identifed to bring together the various stakeholders under a common cause. Organization needs to ensure timely readiness for GST implementation. Any delays in the implementation have potential reputational risk. Hence it is critical to remove any roadblocks to ensure timely completion of tasks . As we approach GST implementation timelines companies should consider the following activities to be GST ready: • Understand key areas of impact in their business • Prepare different scenarios for the design and application of GST • Continually track policy development regarding GST and update prepared scenarios • Identify any areas of adverse impact and prepare contingency measures • Identify issues and concerns needing representations to the authorities and develop a strategy for effective advocacy • Prepare the transition roadmap and align relevant teams • Facilitate sustained implementation 15 Getting GST ready Planning for GST — Part 2

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How EY can help EY has been closely involved with the GST initiative through its Policy Advisory Group - a specialized team of experienced professionals including former government offcials - that advises businesses as well as governments on diverse policy issues. The Group helps businesses anticipate policy changes assess their impact on their operations and engage in a constructive dialogue with the relevant authorities for remedial measures to address any concerns. The Group has diverse VAT and GST experience with extensive interactions with both the Centre and the State Governments in India and overseas engagements in various jurisdictions. What EY brings to address your need Benefts Driving success Global expertise in delivering large transformation programs that includes a proven deployment approach change management and PMO structure A global transformation methodology that will leverage best practices introduce innovation and build a clear manageable roadmap Understanding business inputs delivery dates will allow leadership teams to plan their core fnancial decisions Global experience in successfully delivering GST implementations with market leading companies utilizing proven change management techniquies Reducing delivery risks by using EY Global market leaders in Goods and Service Tax implementations A strong understanding of local regulatory requirements. Delivering large Scale GST transitions across multiple business functions Subject matter experts in goods and service tax accounting supply chain and IT across sectors providing thought leadership and advice on GST leading practices Most optimised business outcome due to EY’s hand-picked cross functional team A partner on the journey — matching your talent. We will bring you the latest thinking and experience with an agile approach to address the evolving GST landscape Proprietary GST navigator tool to assess impact of GST implementation In-depth assessment of impact on as-is business model and across multiple to- be scenarios We provide you the visibility to prepare for change and be GST ready 16 Getting GST ready

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Notes 17 Getting GST ready

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Notes 18 Getting GST ready

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Our offces EY contacts Ahmedabad 2nd foor Shivalik Ishaan Near. C.N Vidhyalaya Ambawadi Ahmedabad-380015 Tel: +91 79 6608 3800 Fax: +91 79 6608 3900 Bengaluru 12th 13th foor “U B City” Canberra Block No.24 Vittal Mallya Road Bengaluru-560 001 Tel: +91 80 4027 5000 +91 80 6727 5000 Fax: +91 80 2210 6000 12th foor Fax: +91 80 2224 0695 13th foor 1st Floor Prestige Emerald No.4 Madras Bank Road Lavelle Road Junction Bengaluru-560 001 India Tel: +91 80 6727 5000 Fax: +91 80 2222 4112 Chandigarh 1st Floor SCO: 166-167 Sector 9-C Madhya Marg Chandigarh-160 009 Tel: +91 172 671 7800 Fax: +91 172 671 7888 Chennai Tidel Park 6th 7th Floor A Block Module 601701-702 No.4 Rajiv Gandhi Salai Taramani Chennai-600113 Tel: +91 44 6654 8100 Fax: +91 44 2254 0120 Delhi NCR Golf View Corporate Tower – B Sector 42 Sector Road Gurgaon–122 002 Tel: +91 124 464 4000 Fax: +91 124 464 4050 3rd 6th Floor Worldmark-1 IGI Airport Hospitality District Aerocity New Delhi-110037 India Tel: +91 11 6671 8000 Fax +91 11 6671 9999 4th 5th Floor Plot No 2B Tower 2 Sector 126 NOIDA-201 304 Gautam Budh Nagar U.P. India Tel: +91 120 671 7000 Fax: +91 120 671 7171 Hyderabad Oval Offce 18 iLabs Centre Hitech City Madhapur Hyderabad - 500081 Tel: +91 40 6736 2000 Fax: +91 40 6736 2200 Jamshedpur 1st Floor Shantiniketan Building Holding No. 1 SB Shop Area Bistupur Jamshedpur – 831001 Tel: +91 657 663 1000 Kochi 9th Floor “ABAD Nucleus” NH-49 Maradu PO Kochi - 682 304 Tel: +91 484 304 4000 Fax: +91 484 270 5393 Kolkata 22 Camac Street 3rd Floor Block C” Kolkata-700 016 Tel: +91 33 6615 3400 Fax: +91 33 6615 3750 Mumbai 14th Floor The Ruby 29 Senapati Bapat Marg Dadar west Mumbai-400 028 India Tel: +91 22 6192 0000 Fax: +91 22 6192 1000 5th Floor Block B-2 Nirlon Knowledge Park Off. Western Express Highway Goregaon E Mumbai-400 063 India Tel: +91 22 6192 0000 Fax: +91 22 6192 3000 Pune C—401 4th foor Panchshil Tech Park Yerwada Near Don Bosco School Pune-411 006 Tel: +91 20 6603 6000 Fax: +91 20 6601 5900 Harishanker Subramaniam Partner and National Leader Indirect Tax Services EY Email id: harishanker1.subramaniamin.ey.com Mobile: + 91 98114 08856 Neel Kamal Goyal Partner Advisory Services EY Email id: neel.goyalin.ey.com Mobile: +91 981 198 8400 19 Getting GST ready

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About EY EY 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. Ernst Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization please visit www. ey.com/in. Ernst Young LLP is a Limited Liability Partnership registered under the Limited Liability Partnership Act 2008 in India having its registered office at 22 Camac Street 3rd Floor Block C Kolkata - 700016 © 2016 Ernst Young LLP . Published in India. All Rights Reserved. EYIN1505-049 ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst Young LLP nor any other member of the global Ernst Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter reference should be made to the appropriate advisor . RS/ AGK EY refers to the global organization and/or one or more of the independent member firms of Ernst Young Global Limited EY refers to the global organization and/or one or more of the independent member firms of Ernst Y oung Global Limited Ernst Young LLP EY | Assurance | Tax | Transactions | Advisory

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