Multinational companies doing business in or with India are eagerly awaiting the introduction of the Goods and Services Tax (GST), which assures cost efficiency for companies. This was reiterated by global leaders of BDO International, the fifth largest network of accounting, tax and advisory firms in the world, which recently held its Asia-Pacific regional partners' conference in Mumbai. Based on experience in other countries, they add that once GST is in place, it also promotes tax competitiveness, resulting in streamlining of direct tax rates (including individual income tax), which further propels the economy.
But while they want a GST regime, BDO's clients across the world are adopting a wait and watch approach as regards the equalisation levy (popularly dubbed as Google tax), which was recently introduced on digital ad revenue for B2B transactions.
John Wonfor, global head of tax at BDO International, said, "On the possible introduction of GST, the reaction of our global clients is that it is a fantastic thing because it is a very complex tax system right now in India where they are dealing with lots of indirect taxes at the state level and federal (centre) level."
The fact that taxes can be recovered on their inputs is seen as an added advantage as it results in cost reduction, so they are very pleased with this development, he added.
Wonfor admitted that when GST is introduced, there is a temporary inflation. "But what generally happens is that after a period of time, market forces take over. If someone has raised their prices to capitalise on the introduction of GST, their competitors are going to drive the prices back to where they should be," said Wonfor. In this context, Martin Van Roekel, CEO, BDO International, pointed out a risk, "If there is no proper market economy , where you have a number of monopolists, there is a much bigger risk that prices will go up." But India could be immune to this risk, given its large and diverse market place, they felt. Both the global leaders said that GST could also lead to a competitive income tax (I-T) regime for India. Europe has in place a value-added tax (VAT) regime, which like GST results in tax being paid only on the component of `value addition'.
Van Roekel said, "If I look at Europe, where VAT was introduced much earlier, in general it led to a decrease in personal I-T rates in almost all countries, after the concept worked well." Wonfor opined that GST in India could prove to be a significant revenue generator for the government, thus putting pressure on it to be more competitive and lower both corporate and personal I-T rates.
Given that Van Roekel had just returned from a trip to China, a comparison between the two markets for professional firms was inevitable. "India has relatively few large players.Compared to the size of the economy (if we exclude their outsourcing operations), these firms are still relatively small.At the same time, India has thousands of smaller firms, many of which are family dominated. The scale of operations in China is much larger. BDO International has 10,000 partners and employees in its Chinese affiliated firm, and ranks No. 3 among professional firms. " The fee income of the member firms in the BDO network (of firms across 150 countries) was $7.3 billion in 2015. On the local front, for BDO India, which has been a member of the international network for a little over three years, the growth has more than tripled.Reforms on the tax and accounting front, together with audit rotation, require mid-tier firms to scale up their operations. Thus, the India member firm, which currently has over 25 partners and 650 employees, aims to add around 20 more partners and take the head count of employees to a thousand during the year. BDO India currently clocks revenues upward of $10 million and is projecting ambitious future growth. It also aims to strengthen its advisory services unit.