Corporate India caught off guard on goods and services tax

L Badri Narayanan, a partner at Lakshmikumaran & Sridharan Attorneys, expands on the complexities India is facing as it readies to roll out a new goods and services tax (GST).

Why does the implementation of GST seem to have caught businesses off guard in India, when the system has been in the works for so long?

Putting the legal and regulatory framework in place has taken the better part of the last 10 years for successive governments. Corporates in India were long convinced that GST in India would be interminably delayed due to the fractious nature of Indian politics. However, the union and state governments have been on an overdrive. This speed has taken corporates by surprise and we are in a situation where the government and tax administration infrastructure seems to be more ready than corporate India.

How are they handling this?

To be fair, the rules are yet to be notified and the final GST rates are yet to be finalised. Corporate India is now on a GST implementation frenzy, but is still hoping for a postponement of the July 1 implementation date to September 1 – which is the maximum that it can be legally delayed, without precipitating a constitutional crisis. The government, however, has displayed no inclination to accede to this demand as on date.

How is the technology behind GST going to function?

The entire GST system is going to run on a common technology platform built by an organisation called the GST Network. While large companies and metro cities will not have a problem, small companies and businesses in tier two and three cities may find it challenging since the overall digital penetration levels in India are still low at this stage. Despite the massive training effort launched by the government, the tax department, as well as large companies for vendors, this will remain a big challenge in the initial one or two years of GST implementation. Despite the extensive use of technology, reconciling mismatches, and ensuring that vendors upload invoices and pay taxes is going to be a manually intensive process, which in the initial stages could also have significant cashflow implications.

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