The Indian indirect tax regime is beset with multiplicity of laws which are also constantly evolving through legislative action, departmental clarifications and judicial decisions. Further, the regime is on the verge of being placed within a more integrated system in the form of the proposed Goods and Services Tax (‘GST’). These features, coupled with the overall increased rigor in tax administration and the possible re-alignment of existing exemptions and incentive schemes have resulted in a complex tax environment for business entities operating or proposing to set up operations in India.
In India, indirect taxes encompass every area of business be it manufacturing, sales of goods and services, imports exports etc. Due to the shifting nature of indirect taxes, they are ultimately borne by the final consumer. Therefore if a business entity fails to anticipate the applicability of indirect tax and does not recover the same from the consumer, it becomes a cost to the entity and is a direct hit to its bottom line. Consequently, indirect taxes have a direct bearing on the costs, pricing policy, cash flow and profitability and ultimately the competitiveness of an organization. Hence it becomes critical to evaluate the impact of various indirect taxes on any given transaction.
In last few years, the indirect tax regime (particularly service tax) has undergone a sea change. At VKC we provide comprehensive advice and assistance on indirect taxes. Our leadership team includes professionals with substantial experience to see you through the implementation process and provide ongoing solutions in the field of indirect taxation.
Despite the various reforms carried out in the past few years, the prevailing indirect tax regime in India is still in a state of evolution. The system is quite complex, with multi-layered levies both at the Central and State level. The Central government levies tax on goods at the point of import (Customs duty), manufacture (Excise duty), inter-state sales (Central sales tax or CST), and on provision of services (Service tax). The states, on the other hand, have been vested with powers to levy tax on sale of goods within the state (Sales tax/Value Added Tax or VAT), and on the entry of goods into the state (Entry tax), under the respective state laws.
The existing regime requires businesses to undertake careful upfront analysis of the tax costs involved in a transaction¸ ensure adequate backup documentation to support their tax positions and constantly explore opportunities for tax optimization. Further, as India is committed to move towards uniform Goods and Services Tax (GST) regime, this needs to be factored in any significant tax approach being developed at present.