Approximately 60% of Indian middle-market companies expect the implementation of the national Goods and Services Tax (GST) to have a positive impact on their businesses.
The Indian government expects its national GST to take effect on July 1, 2017. The new tax will replace the patchwork of indirect taxes currently levied by the Central and State governments. As part of its 2017 Indian Middle-Market Banking Study, Greenwich Associates asked 213 Indian companies about how they expected the new tax regimen to affect their businesses.
Sixty-one percent of companies in the study expect the new tax to have a positive impact on their business by lowering costs and lowering their administrative and compliance burdens.
“The most positive outlooks are found among companies in logistics-heavy industries and companies whose businesses cross Indian state borders, which will benefit from reduced paperwork and the elimination of the need to navigate multiple state tax regimens,” says Greenwich Associates Principal Gaurav Arora.
Only 12% expect GST implementation to negatively impact their businesses, with the remainder neutral. Many of the companies projecting a negative impact cited the accounting and compliance challenges associated with the transition from one tax framework to another, and fears of an increase in the overall tax burden or other costs.
Among the industries in which companies were most optimistic about the impact of the GST were autos/auto parts, construction, machinery and heavy equipment were most positive in their expectations for the GST.
At the other end of the spectrum, companies in services, technology and consumer goods were the most likely to say the GST would have a negative impact.
Companies Looking to Banks for Help
The shift to the new GST could provide an opportunity for banks to strengthen relationships with middle-market clients and win relationships with new companies.
Banks can provide critical advice on how to manage the transition to the GST from a procedural and documentary compliance perspective. This includes leveraging their own tax expertise to help companies interpret aspects of the new law that are less than black and white in their meaning.
“It’s incumbent on banks to quickly update the e-banking and other digital tools they provide to clients in order to make the transition as seamless as possible,” says Greenwich Associates Managing Director Paul Tan.