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Abu Dhabi, UAEThursday 21 June 2018

India's new tax marks a major turning point

But for the complete picture of the impact, we will have to wait a few more months, says expert

An Indian consumer goods trader shows letters GST representing Goods and Services Tax (GST) at his shop in Hyderabad. AFP
An Indian consumer goods trader shows letters GST representing Goods and Services Tax (GST) at his shop in Hyderabad. AFP

Here Nishank Goyal, the chief executive of Masters India, a tax solutions company, talks to The National about the impact of India's goods and services tax (GST), which was introduced to July.

To what extent do you think GST has had a negative effect on the Indian economy and businesses?

I would say that GST might have had some effect. But for the complete picture of the impact of GST, we would have to wait a few more months, I would say. Businesses might get entangled with compliance. Particularly small businesses.

What about bigger organisations?

Large companies were better prepared with consultants on board. In the short-term, a lot of businesses are still engaged with making their processes and systems GST ready.

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The introduction of GST had been planned for years so why were a lot of companies not prepared?

A lot of businesses were not planning for it because they had that the attitude that GST would not actually happen, and then it was implemented and companies were not prepared. They weren't prepared with regards to how transactions would be done under GST, having their systems prepared - their IT systems especially – and they were not prepared for filing. Their knowledge about GST was limited. They're now struggling and trying to get up to speed and understand it. There's still a lot to do.

How does the tax affect costs for companies?

It depends on how much of the burden of tax they are able to ultimately pass on to their consumer. If it's a commodity product, for example, a lot of companies who are established will be able to pass on costs and with the supply chain they can benefit from a more efficient tax system, which should reduce costs. But in terms of systems, companies do have to spend money now on technology and compliance to be GST ready.

Can you expand on the challenges companies are facing?

There are multiple challenges I would say. The biggest challenge is the GST filing. In many cases, what we saw with the returns was some details were wrong, and tax calculations were wrong in some parts, and the way they had to handle transactions in GST compliant ways were not correct. It took a lot of time to help clients sort out their data so they could upload the returns on time.

How long will it take for things around GST to settle?

It won't be in the next three or six months. The law itself will evolve. I think the IT system should become stable in the next three to six months. But people might think the law is not clear enough, so issues will go to the court. As the system becomes more mature it will become stable. In the long run, you won't require so many people just looking at the tax part of it.

What about the longer term impact of the new sales tax regime?

I think we should see an economic boost. A lot of businesses will now be reporting their sales and business that weren't before. It will help bring a lot of businesses from the parallel economy to the formal economy. GST will make that happen.

Will GST also enhance India's corporate commercial landscape over time?

I think in the long run it will help businesses. We have done away with the indirect taxes. Now there's just GST. But it will take time for the whole ecosystem to have a clear understanding of GST law itself.