In recent weeks there have been increasing signs that the schedule is coming to an end The introduction of the Goods and Services Tax (GST) in India on April 1, 2017 could not be complied with.
The main reasons are the disruptions in the markets caused by “demonetization”. On November 8, 2016, the 500 and 1000 rupee notes, which accounted for 85% of the cash in circulation, were declared invalid. On the other hand, heated domestic political debates have broken out between the central government in Delhi and individual Indian states about the administration of the new - central - tax revenues and the tax equalization that is now due for the state governments, which previously had tax sovereignty.
Which speaks for the introduction of the Goods and Services Tax in July
Time is already running out for the tax to be introduced next spring. The following reasons speak in favor of introducing the Goods and Services Tax on July 1, 2017 (or a gradual introduction in stages):
- Due to the Demonetization There is still great unrest in India at the moment. Both entrepreneurs and consumers are extremely unsettled and retailers in particular are complaining about massive losses in sales. In everyday economic life and financial behavior he could “Aam Admi.” (the little man or Indian “Otto average consumer”) is far from becoming the order of the day. The government would do well to learn from the mishaps in implementing this extremely controversial measure and to give its citizens a short respite before imposing such a harsh cut on companies in a similarly unprepared manner.
- The Indian financial year As is well known, ends on March 31st. Experience has shown that the weeks before (and after) are always quite turbulent. The introduction of the Goods & Services Tax on April 1, 2017 is likely to cause a few sleepless nights for all CFOs, including accountants.
- The Adaptation of the corresponding IT and ERP systems in companies - especially with the FI/CO modules - takes significantly more time than would then be available. If the final implementation and introduction of the GST were rushed through all committees in January, companies would barely have two months to technically implement and reflect the new tax in their accounting systems. Although the tax rates (0%, 5%, 12%, 18% and 28%) have been determined, it is still unclear which products will fall into which category and how the input tax deduction will work in practice.
- In addition to these necessary operational measures in the IT systems or at the Compliance The introduction of the Goods and Services Tax impacts numerous processes strategic decisions for the supply chains of companies in India.
Since all tax advantages that may arise from the GST must be passed on to the respective end customers (“anti-profiteering clause”) and because many taxes are eliminated or replaced, the prices of your own products change. Companies, and especially those that import, must then rethink their value chains and ask themselves the following questions, for example:- Does it (still) make sense to import to India under the Goods & Services Tax, or will it perhaps be more economical to manufacture locally in India in the future?
- Should warehouse and service be organized centrally or (still) decentrally? Such decisions cannot possibly be made, let alone implemented, in two months.
A business-friendly government does not want and must not offend companies in this way.
- Despite everything, the Indian government must now act. Due to the specified legal deadlines The Goods and Services Tax still has to be paid BEFORE September 16, 2017 be introduced. Otherwise the whole process will start all over again - and the GST cannot be introduced in the foreseeable future. Prime Minister Modi probably cannot afford to miss this window of opportunity for his historic project. The introduction in July therefore appears to be basically the first and at the same time the last possible date for introducing the Goods & Services Tax in India.
This year the budget for 2017/18 will be published on February 1st. Therefore, January will be particularly exciting in terms of GST. It would make sense to decide by Finance Minister Arun Jaitley's budget speech whether and when - and in what steps - the Goods & Services Tax will be introduced.
GST Introduction in India: Don't be fooled!
Much ado about the Goods and Services Tax in India
One thing is clear: the Goods & Services Tax will be THE big issue in Indian business in 2017. But that's no reason to let politics, the media and consultants drive you crazy just yet.
Because as long as the final implementation of the Indian VAT is not yet established, It makes little sense to hire expensive business and tax consultants in this matter. Because they don't know any more at the moment. There are – understandably – no empirical values, best practices and, moreover, still too many open questions to work on implementation in your own company. We therefore hold back from making recommendations, interpretations and explanations.
Our only advice for you: Follow the latest news on the subject of Goods & Services Tax or subscribe to our GST alert. We keep you regularly and objectively updated on the latest developments on Goods & Services Tax in India.
And approach the topic calmly! Feel free to send your employees to appropriate seminars and identify potential impacts, but do not make hasty decisions. It is currently too early for implementation in the ERP systems or even for the development of new business models!
Ultimately, the Indian authorities will certainly be lenient when it comes to formal errors in the implementation phase and during a transition period - as long as you don't try to "aggressively" find loopholes and exploit them.
