Sep 14 2010
I do not believe you can do today’s job with yesterday’s methods and be in business tomorrow. — Nelson Jackson
India is at the threshold of major regulatory cha nges. A country that is culturally unique today, also finds itself in a unique position from an economic governance perspective. No other country in the world today is facing a sweeping transformation of the foundations that govern the corporate business world along with retaining a robust level of economic growth.
“Fortunate” is how I would like to think each one of us is, to be witnessing these moments, when history is being created in India. Our country’s economic legislation is at a very critical phase, where we are modernising four of the big and most critical legislations and regulations that will change the way corporate India will function.
A new Direct Taxes Code (DTC), goods and services tax (GST), international financial reporting standards (IFRS) and the Companies Bill 2009 — India Inc is about to get a makeover. Once these regulations are put in place, it will make corporate India relevant to take on an ever-changing world.
Yet change is never easy and India Inc may be facing its biggest ever challenge in dealing with so many changes at one time. But challenge is meant to rouse, not discourage and this is the kind of change that must be welcomed and embraced. When an attempt is being made to make India investor friendly, increase governance, harmonise and simplify tax structures, reduce overall tax rates and improve financial reporting standards, India Inc must support the regulators in making these changes.
The world is not just flat, it is also very dynamic. India has to respond by opening its doors and creating an environment wh ere the world not just wants to come here for economic gain but also learns to trust us and our governance systems.
We must therefore welcome the attempt to change the archaic Companies Act 1956 with the new Companies Law Bill 2009. It lays down the benchmark for corporate governance, encourages responsible self regulation, disclosures and accountability, articulates shareholders demo cracy and protects minority interest and aims to harmonise company law with other laws that govern companies operating in India.
At present, IFRS is presently being followed in more than 100 countries and by 2011 it is expected that more than 150 countries will require /permit/adopt the use of IFRS as a single comprehensive framework for financial reporting for the securities market ac ross the globe.
This will enable better management of expectations of all stakeholders about impact on earnings and equity and the entire change process, whereby IFRS reporting can be embedded into the financial reporting processes and we will be globally aligned.
The adoption of IFRS may assist in significant improvement to the quality of existing financial reporting for potential investors; it will facilitate the future initial public offering (IPO) process within the nation as well as cross-border issues.
In a recent survey of international companies operating in India, CEOs identified tax as one of the greatest challenges. In any international tax conference, India is hot topic and it is common to hear international tax professionals trying to come to terms with Indian taxation. Tax laws have had an organic growth with more than 4,500 amendments since the Act was enacted in 1961.
Nothing short of a revolution in tax laws and in the way that they are administered will remedy the situation. While a revolution may not be possible, a revamp is possible and the two new tax regulations are attempting to do just that.
With a base of 35 million taxpayers and nearly 100 million PAN holders, the impact of the DTC cannot possibly be overemphasised. Some of the beneficial provisions of the existing Act continue to be grandfathered under the DTC, thereby de monstrating the government’s supportive intentions and effort to gain the taxpayers’ confidence in the tax system. India Inc has always yearned for a stable , simple, and modern tax regime.
Indirect tax, viewed as the boorish cousin of direct tax, is also undergoing a major ma keover and we hope that we will look forward to an urbane law. The GST will have a direct impact on how business is structured.
GST should bring in a harmonised tax structure, unified tax base, and common rules and administrative procedures ac ross the nation. Simplification of tax procedures and transparency will encourage investments in the organised sector.
This unified tax structure will help in eliminating disparity in taxing of goods and services and also aid the government in consolidating its financial position. Alongside a drastic improvement in tax compliance, GST aims to bring a seamless flow of credit across the value chain for inter-state trades, as well as in respect of taxes levied by multiple authorities.
There is no denying that each of these changes will come with a number of challenges. One thing is certain, the impact of these four major regulatory changes in conjunction with the takeover code and competition bill will make India Inc modern and vibrant.
However, companies will have to proactively gear up to respond to these opportunities and challenges. The game is changing; the question is whether modern India is ready to play!
I will conclude by quoting Hillary Rodham Clinton – “The challenges of change are always hard. It is important that we begin to unpack those challenges that confront this nation and realise
that we each have a role that requires us to change and become more responsible for shaping our own future.”
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