COMMENT: Why Indian taxpayers need to be patient during a busy 2012

February 13, 2012

Rumours of delays in the implementation of India's Direct Taxes Code (DTC) and goods and service tax (GST) should be welcomed by taxpayers.

While there has been no formal announcement confirming that both of these changes will not be effective on April 1 2012, you would be hard pushed to find an Indian tax professional prepared to bet that this target will be met.

So why are these delays good news? Surely, having certainty and being given ample time to prepare for change is vital for business operations?

But what needs to be realised is that the reason for the holdup is that the government is not happy with the laws and are not prepared to let them loose on the public.

The DTC and GST have already been delayed a number of times and so this would suggest that there are still more problems to overcome.

At the end of 2011, International Tax Review organised and attended Indian tax conferences where these two topics dominated discussions. Delegates argued about the challenges of preparing for change. This is a fair argument. How many countries would drastically alter their direct and indirect tax laws at the same time, to take effect on the same day, and expect everything to go smoothly?

Matching these arguments were professionals eager for the government to listen to their concerns and implement them rather than rush in an imperfect law that will lead to increased litigation and higher levels of uncertainty – something that would do little to improve India's image to investors around the world.

The only solution, and this may not be popular with taxpayers, is to sit tight and carry on business as usual. Speculation as to why things have been delayed and the growing anger pointed towards the government will not help speed things along and will damage the image India portrays to the wider world as a place to do business.

The image of India's tax system to the rest of the world is the focus of this month's cover story of India Quarterly. While the future of the DTC and GST is still unknown, India still attracts high levels of foreign investment in all sectors. But with numerous tax obstacles to navigate around, the feature offers some practical guidance as to how a company looking to direct resources to India can avoid the tax pitfalls of foreign investment.