What does new tax mean for Indian businesses? Opinion article by London based finance writer Zak Goldberg on behalf of international accountants RSM.
Paperwork in any form provides business owners and administrators with a headache, but a new tax introduced by the Indian government could do more than that. The Goods and Services Tax (GST), which is due to come into place this summer, was designed to make trading between regions a little simpler, as well as bring in much needed revenue for the state.
Many business across the country will spend a lot of time preparing themselves for the new levy. Different goods will be taxed at different rates, with services having levies of either 12% or 16%. Goods will fall into five tiers of tax – 5%, 12%, 18%, 28% and 28% plus cess – an additional charge for items such as luxury cars.
Aside from clearing up the amount of tax that businesses across the country pay on their purchases, the Goods and Services Tax is being brought in to remove any discrepancies between different states. There is, however, a little concern amongst many companies, who may fear the worst when the tax is signed into law.
Until July 1st, when the new tax laws are made official, Indian firms in different states are facing a rush to become compliant. The need to know what they should be paying for each product and service they buy becomes paramount.
Companies who may end up paying a higher rate of tax once the new levy is introduced face a race against time to buy their goods/services at their current, lower rate. This anticipated rush for cheaper goods could see some goods soon become scarce.
On the flipside, to avoid any potential accounting errors, some businesses are leaving it until GST’s introduction to buy what they need. This is likely to have a negative impact on income generated through business tax, providing a growing economy with a small blow. There is also the possibility that some states may see tax receipts lower than they were before the new tax.
Uncertainty over the total tax bills is likely to occur in the short-term. Tax advice for businesses in India may prove useful for the time being, even if it incurs expenses that smaller companies could do without. Such advice will be needed when knowing what to pay on some goods, as well as which products are the most tax-efficient.
As it stands, tax rates have yet to be set for a select number of products, one of which is petroleum. A lot of work is still to be done, yet most states have passed the new laws. Businesses who are not prepared for what they need to pay will need to seek advice, either through tax experts or their local tax authorities.
Despite the upheaval, companies of all sizes in India will at the very least not have to worry about different rates when buying products from another state. It will, however, take some getting used to, with millions of businesses across the country not yet prepared for the advent of GST. Extra administration work is a certainty.