India set to launch biggest tax reform
NEW DELHI: India is bracing for upheaval as it storms ahead with its most ambitious reform in decades — transforming the world’s fastest-growing major economy into a single market for the first time.
The long-awaited goods and services tax (GST) rolls out Saturday even as businesses complain they are ill-prepared for the massive changes about to ripple through India’s unwieldy, $2 trillion economy.
The government promises the new regime will not just simplify trade by replacing more than a dozen levies with one tax but combat corruption and enrich state coffers by bringing the informal economy into the digital era.
Most economists agree the reform — first proposed in 2006 — is necessary and
A key element of diversifying away from oil will be the ability to attract foreign direct investment (FDI). But until recently, FDI flows into the Kingdom were on a downward trend. Vision 2030 aims to reverse this. By driving a culture of transparency and accountability, Saudi Arabia hopes to capitalize on the opportunities presented by infrastructure investment and the fact that it is the largest economy in the Middle East.
Transparency will depend partly on setting a high bar for corporate governance — where investors are confident that there is a culture of ethics and integrity, they will be comfortable investing. In the UK this has been achieved via the Corporate Governance code, which was drafted at Chartered Accountants Hall, the London headquarters of the Institute of Chartered Accountants in England and Wales (ICAEW), in the early 1990s.
Investors also want accountability, which means a strong audit profession. When investors and markets can trust the numbers, they can be confident in business. The audit profession relies on trust, which is why independent monitoring is important.
Strong regulation is necessary, but it needs to be proportionate so as to support the growth and development of the profession, including ensuring there is a level-playing field for smaller firms, and safeguarding the profession’s ethics and behavior.
Finally, there is the issue of comparability. International Financial Reporting Standards (IFRS) are the best way to deliver this. There are 150 countries currently using IFRS for their financial reporting, and when Saudi Arabia became part of the G-20, it also adopted them.
IFRS do not just ensure transparent, efficient financial reports. They also mean those reports are comparable with other countries across the globe, which is tremendously attractive to international investors. long overdue, but warn the initial shock to the economy is likely to drag, rather than stoke, growth in the short term as businesses adjust.
There are already signs the transition could be rocky. Industries are on strike, others are facing an avalanche of paperwork, while some retailers remain unclear about what to charge just days before the taxes take effect. “There are different rates for a mobile set, charger and headphones — all of which come in one box,” said Praveen Khandelwal, secretary-general of the Confederation of All India Traders (CAIT), pointing to one such example.
“What tax rate will be applicable in such a scenario? We do not know yet.”
A slew of basic staples like fresh vegetables
The introduction of a 5-percent valued-added tax (VAT) in January 2018 will generate new non-oil revenue for the Kingdom. The new tax regime, which is being adopted across the entire Gulf Cooperation Council (GCC), is sign of economic maturity, but it will not be without its challenges.
According to a survey conducted by EY, half of GCC-based companies are yet to prepare for VAT. Only 11 percent of businesses have evaluated the changes needed across their financial, operational and IT processes.
With most of the GCC region facing delays in implementing VAT and issuing country-specific VAT laws, companies should ensure an effective change-management plan is set. They need to understand how the tax will influence the day-today running of their operations, and put in place measures to address this so they are ready for January 2018.
Vision 2030 will catalyze some of the most disruptive changes the local economy has witnessed in decades, and it has the ambition to make it happen. Accountants and finance professionals have an essential role to play in helping governments and businesses navigate this new terrain, building trust along the way and contributing to a prosperous and sustainable future.
QMichael Izza is chief executive at the Institute of Chartered Accountants in England and Wales (ICAEW). and milk are exempted, along with less obvious items like temple offerings, the national flag and human hair.
So-called “sin” goods like tobacco will be slapped with extra levies, while states will still be allowed to separately tax some products including petrol and aviation fuel.
Some industries have suddenly discovered their products elevated to a higher tax bracket. Fireworks manufacturers are protesting over crackers being taxed at the maximum of 28 percent, while garment and textile workers are crying foul over heightened imposts.
Ayushi Gudwani, who runs an online fashion startup, supports the creation of a common market but was shocked to learn her taxes had more than doubled.
“Our profitability will be hit,” she told AFP.
Under the new regime, companies must file a tax return in every state they pass through — a nightmare for a trucking company shipping goods nationwide.
All but the smallest businesses will now be required to declare their earnings online, an effort to broaden India’s woefully small tax base, digitize the economy and flush out cash hoarders.
But training employers to log tax information online presents immense challenges in India, where most small and informal businesses do not own computers, let alone access the Internet, the trade association said.