Companies with operations in India face mounting confusion and complexity over the introduction on Friday of the country's new value-added tax (VAT) system.
Up to seven of India's 29 states have refused or failed to implement the new law, which was designed to simplify the country's complicated indirect tax system, comprised of many different state sales taxes.
The new system has caused concern in trade-dominated states, many of which have rejected the new law, because the rates of up to 12.5% were considered too high.
"It will be very complicated and a big burden for companies with operations in all states," said S Thirumalai, national director of indirect taxes at Deloitte Haskins & Sells in Mumbai. "Even now there are not more than five or six states that are really prepared for administering the new system so we will see as we go along."
Companies may have to keep separate accounts for operations in VAT and non-VAT states, which would add to an administrative burden that is already heavy when it comes to indirect taxes. But there are opportunities as well according to Thirumalai: "There are certain positive possibilities here as well because a number of tax havens [states that will not take part in the VAT system] have been effectively created overnight."
The Indian government's original intention was to create a standard, country-wide indirect tax system that would be simple to administer. The reality at the moment looks rather fragmented.
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