In focus: India’s GST – The Challenges Ahead

We asked three experts to outline what they consider the main challenges GST will face over the coming months and years

There can be no doubting that India’s introduction of the Goods and Services Tax (GST) is one of the most ambitious tax reforms ever attempted.

Narendra Modi’s government have begun the roll-out of the new system this month, setting the wheels in motion for a reform that looks set to change the face of the Indian economy forever. We asked three experts in the field to consider the main challenges the GST faces in implementation.

Lakshmikumaran, Managing Partner at Lakshmikumaran & Sridharan, an Indian law firm, was keen to highlight the practical challenges ahead;

“The GST regime is expected to impact approximately 8 million tax payers in India. It is the first time that a completely IT driven tax administration and compliance system has been developed in India for such a large base of taxpayers.”

“To make this possible, a robust IT interface is also required to be set up internally by all the major taxpayers. Hence, apart from being an achievement, the upcoming GST poses a challenge for businesses as well as tax officials alike in the initial few years of its implementation.”

“As one can see that GST is proposed to be rolled out from July 2017, there is hardly any preparation time left for taxpayers to plan their business transactions and upgrade their IT systems to make them GST compliant. Other consequential issues that are going to affect the taxpayers during the early years of the GST regime relate to classification and valuation of supplies, dual administration, and enhanced compliance costs.”

Building on practical concerns, Anita Rastogi, Indirect Tax Partner at PwC India, highlighted the need for preparedness “in all areas” – particularly on the technological side;

“The greatest transformation in India is the upcoming introduction of Goods and Services Tax (GST). GST is quite different from the existing indirect taxation system in the country. Now, every change brings with it, its own challenges.”

“The foremost issue faced by businesses would be to ensure smooth transition to GST without any business disruption. The key to this is preparedness in all areas and focus on technology backbone. This is important as GST would be a completely e-enabled tax regime with almost negligible human intervention. So technology preparedness is a must and businesses need to focus here.”

“For government, change management would be a major challenge. For effective implementation of GST, tax administration staff would require to be trained properly in terms of concept, legislation and procedure. It is important that they would have to ‘learn, unlearn, and relearn’ the aspects of tax on goods and services. Here is where the first signs of problems may arise and this has to be overcome by robust training and rigorous coaching.”

“Proactively looking at the issues and forming upfront strategies to mitigate them is the key to successful implementation of GST by both businesses and government.”

Abanti Sankaranarayanan, Chief Strategy and Corporate Affairs Officer, United Spirits, gave an insight into the concerns of the alcobev industry around the reform, which of course excludes alcohol;

“The introduction of the Goods & Service Tax (GST), a single, nationwide, simplified and comprehensive Value Added Tax in India, heralds in an improved business environment with a much-needed regulatory transparency, augmenting its positon as an attractive investment destination.”

“However, the alcobev industry’s exclusion from the GST is to the detriment of the government, industry as well as the consumers. While the output (end-products) are not covered under GST, the input (raw material, allied and ancillary industry costs) are subject to GST. Consequently, manufacturers will face sharp cost increase due to their inability to claim input tax credit.”

“Currently, the industry is seeking status quo from the States and Centre on input tax rates, even after GST is implemented. This will offset the additional cost pressures on the alcobev industry, especially since price increases require state approval. Even if price increases were to come through, consumers will be burdened with significant price increases which may lead to the growth of illicit.”

Hopes for the future

Both Indian and British government officials have been talking up the prospects of the GST, with Prime Minister Modi heralding it as a Bill that will “further strengthen the way [India] is trying to accelerate growth and make the economy predictable.”

The Prime Minister said that this reform will promote ‘Make in India’, help exports and thus boost employment, while at the same time providing enhanced revenue.

He added, “GST will also be the best example of cooperative federalism. Together we will take India to new heights of progress.”

Meanwhile, the mood music coming from the UK government has also been positive on GST. Priti Patel, UK Secretary of State for International Development, described the Bill on an official visit to India last year, as “an important piece of reform” that will make India “more attractive when it comes to investment opportunities and also for business to business relationship.”

The bar has been set high, but so have the hurdles. It is clear that certain sectors will face challenges, while others will benefit, and as the Indian economy adapts to this change, of course there will be teething problems. The roll-out of such a complex reform, is undoubtedly going to encounter practical issues, as noted by our three experts.

Yet there is still reason for optimism. Providing these obstacles are overcome, there can be no doubt that this reform remains on course to change the face of the Indian economy forever.

To find out more read our GST Quick Guide.