Companies must prepare for challenges as India overhauls its tax regime with the introduction of a goods and service tax in 2017
Rebecca Abraham reports
India’s notoriously difficult to navigate tax regime is to get a much needed overhaul in 2017 when a goods and service tax (GST), on almost every transaction of supply of goods or services or both, is introduced.
Both the central and the state governments will have powers to make laws to levy the GST when the legislatures of half of India’s 29 states ratify a constitutional amendment allowing it that was passed by parliament last month. The president is expected to give his assent soon after.
FAIR AND TRANSPARENT
Under the GST regime, suppliers across India would be able to make a single tax payment in place of the multiple indirect taxes that are currently payable to both the central and state governments.
In addition, with the GST being a value-added tax (VAT), taxpayers would be able to obtain credit on taxes charged on goods and services used in the course of their business – barring certain exceptions.
“We are moving towards a structure that is going to be much more fair and transparent, and also uniform across the country,” remarks V Sivasubramanian, the tax practice head and a director of Lakshmikumaran & Sridharan in New Delhi.
Unifying the indirect tax regime in this manner is intended to stop the cascading of taxes, which acts as a hidden cost and affects the competitiveness of goods and services.
The central government expected to collect a total of ₹14.4 trillion (US$214 billion) in taxes for 2015-16, including about ₹6.5 trillion in indirect taxes.