India, is on the cusp of a massive tax reform with movement from
the existing multiplicity of indirect taxes to a Dual Goods and
Services Tax Regime (Dual GST Regime). With introduction of the
122nd Constitution Amendment Bill in the Parliament, there is
renewed optimism that the most important piece of India's tax
reform initiative, is on course and introduction of GST from 01
April 2016 looking pre-eminent.
The much awaited GST Regime announced way back in 2006 had
missed several deadlines in the past, due to lack of political
consensus. The groundwork on GST implementation got a fresh impetus
with the new federal government taking charge in 2014. The new
government laid down a strong intent statement of implementing GST
in the Union Finance Budget in May 2014. The intent statement was
followed up with introduction of the revised Constitutional
Amendment Bill in the Parliament on 19th December 2014 post hectic
parleys with the States to evolve a consensus. In the Union Budget
2015, the Union Finance Minister had underlined the importance of
GST to be a game changing reform for the Indian Economy and
reiterated their commitment to make it a reality from 01 April
However, it is observed that corporates in India still appear
ambivalent about the impact of GST on business, on the pricing of
products and services, and on making their businesses and processes
The biggest challenge for the Indian corporates is to understand
the enormity of GST. GST will impact every part of the business
from financial reporting and tax accounting to the supply chain.
This will lead to a potential re-design of procurement vendor
contracts, buying models and changes in the IT and ERP systems.
Special attention needs to be given to long- term contracts,
while tax clauses have to be examined for change of legal
provisions. Business contracts have to recognise GST's impact
while drafting the agreements with enabling clauses, to pass on the
additional incidence of GST.
It is pertinent to highlight that there is no standard benchmark
to assess the cost involved for companies to be GST-ready. The cost
involved for companies to be GST-ready will differ from industry to
industry, and from sector to sector. The effort and costs involved
would largely be dependent on the nature and breadth of business
operations. Having said the above, service companies might need a
much higher resource involvement in streamlining their processes
and procedures and transition to the compliance framework.
Further, going by the international experience, it is expected
that GST could create an inflationary pressure in the Indian
economy for a period of 12-15 months after its roll-out. The
pressure should subside as the impact on product pricing starts to
play out. Nonetheless, competitive pressures would also ensure that
prices would come down over a period of time.
Undoubtedly, the clock has started ticking for corporates to
take notice of the above and gear up for the GST implementation
from 01 April 2016. Clearly, it still is 'early days' in
corporate India's journey to be GST-ready.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).