India GST: The final leg of the journey

Niraj Bagri

After several twists and turns over the past decade, the introduction of goods and services tax (GST) in India is in the final leg of its journey.

If the experience of time taken for the introduction of the VAT regime in the European Union and the recent discussion on introducing VAT in the Gulf Cooperation Council (GCC) member countries is anything to go by, the time taken by India (approximately 10 years) is not out of the ordinary. Resolving the complications arising from the involvement of multiple stakeholders and achieving consensus among all of them is no mean task. While the EU and GCC have multiple countries, India – with its taxation structure divided among federal and state levels – means that the task of achieving consensus among several stakeholders is no different.

According to media reports, the GST Council has given its stamp of approval to the Central GST and Integrated GST legislation, subject to a few changes that are being carried out by the legal arm of the government. Furthermore, in a recent GST Council meeting, the state legislation and union territories legislation has also been approved.

The Indian parliament is in session until the end of March 2017 and it is expected that both the aforesaid pieces of legislation (i.e. Central GST and Integrated GST) will be approved, paving the way for the state and union territory GST legislation to be approved by the respective state legislatures.

The government has time and again emphasised its intention to roll out GST by July 1 2017.

For companies yet to initiate implementation of GST, it is going to be a difficult task for them to prepare their systems and teams by July 1 2017. They will need to quickly get their act together and start the implementation process aggressively to ensure seamless transition. Any laxity may result in disruption of business operations. For instance, the inability to raise the appropriate invoice or to file timely returns could cause a hindrance to their operations.

Another area of compliance is adherence to an anti-profiteering clause. Taking a leaf out of GST laws being introduced in other countries, the GST legislations contain an anti-profiteering clause that provides for businesses to pass on the benefits arising out of higher input tax credits or lower tax rates to the consumers. Another reason for inserting such a clause is to overcome the inflationary pressures that have been experienced by countries who have introduced a GST or VAT regime in the past. Thus, a detailed working of the impact of GST would be necessitated to demonstrate whether businesses have benefited due to GST and, if so, the manner of transmission of such benefits in their pricing.

Any change will bring its share of uncertainty. Given the fact that the introduction of GST appears to be in its final leg and the date of implementation is now visible on the horizon, the importance of taking quick steps is vital to ensure continuity of business operations in an unhindered manner.

Niraj Bagri (niraj.bagri@dhruvaadvisors.com)

Dhruva Advisors

Tel: +91 22 6108 1000

Website: www.dhruvaadvisors.com