Now on July 1, 2017 - with the Introduction of Goods and Services Tax (GST) – implemented the largest tax reform since India's independence.

What was written and warned in advance by the media and consultants...?!

The calm after the storm

This time, however, the predicted chaos did not materialize (for now). The German-language media no longer reported on the Indian tax reform at all, with the exception of the fact that cinemas in Tamil Nadu were closed for a day in protest against tax increases. But the Indian media also reported “no special incidents” and without the usual sensationalism.

The transition and introduction of the GST is (not only) extremely calm and orderly by Indian standards. When asked by several local CFOs and chartered accountants, they spoke of a change “like any other”. Of course, there are still minor problems and potential for improvement in the processes and digital systems of the Indian tax authorities.

Those companies that are currently making excuses about the GST and complaining about problems have usually cheated in the past and now have an acute need for explanations and changes. But this only has something indirectly to do with the Goods and Services Tax.
But there is by no means any great ambiguity or chaos in the market. So the scaremongering of many pandits was in vain.

Input tax deduction (refund process) not yet perfectly solved

The most questions and greatest concerns still arise when it comes to the subject of input tax deduction. The customer can only deduct the GST as input tax if his supplier has actually paid it. To do this, service recipients AND service providers must upload the correct VAT invoice to the tax authority's financial portal.

However, this process has already been criticized several times in advance and is likely to be reconsidered and revised in the coming years.

Significantly more transparency and more stringent processes

Nevertheless, this very process leads to significantly more transparency for the benefit of customers. From now on, all products and services must be shown individually on the invoice with their specific tax rate. This has not been a given or common practice in India until now.

In any case, the GST catapults the Indian economy into the 21st century. The Indian tax system is clearly moving “towards Europe”. The systems are becoming more professional and now follow international standards.

This is particularly an advantage for European companies doing business in India. Because they not only benefit from more transparency and the elimination of “traditional Indian shortcuts”, but above all from the fact that we have been using such tax systems for decades and therefore understand them. In terms of internal logic, the Indian GST follows the same principles as the VAT in Germany. This is precisely why there is nothing to fear in India if people in India also adhere to the principles we know.

Therefore, in our opinion, there is basically no need for GST-specific consulting services in most companies. Those who want to convey something different and sell expensive consulting hours are only pursuing their own business interests under the pretext of GST.

GST benefits everyone

From our point of view, the GST is a godsend for all those who already followed the rules and played “fair play”. Because now everyone is suddenly forced to be tax honest. In the long term, all companies will benefit from this new transparency and the simplification of administration (including reducing bureaucracy) and logistics, which will lead to better profit margins and higher profitability.

Of course, the Indian state also benefits, as it expands its tax base and finally brings the country together into a unified economic area.

What happens next with GST?

So much for the first inventory – two weeks after the introduction of the Goods and Services Tax in India.

However, with the first monthly closing including the “VAT advance return” it becomes even more exciting to see whether and how the refund process works.

We will continue to keep you up to date on potential issues, adjustments and best practices regarding GST India.