The Hindu Business Line : `Corporates not quite ready for VAT'

THOUGH stock markets are looking to successful implementation of VAT as a trigger, management consultants believe that implementation difficulties of the new tax will take 6-12 months to be ironed out.

Investment managers, especially foreign institutional investors, are circulating reports to their clients that suggest that the markets are hinged on the introduction of VAT and the manner in which agitations against it are controlled. They have also ruled in a possibility of sluggish sales and decreased earnings.

Management consultants, who are handholding corporates in their bid to be ready for VAT, are certain that difficulties in implementation will be intense in the first six months and will continue for a year.

"After today's empowered committee meeting, 21 States have agreed to go ahead with VAT. Now, the specific rules of each of these States have to be notified. Because of this delay, corporates have had little time to be fully ready," said Mr Sachin Menon, Partner - Indirect Taxation, Ernst & Young.

Many corporates have not even initiated the process of obtaining the State-level TIN numbers, which are mandatory for VAT. Though the expectations are that the present sales tax numbers will be converted to a TIN number by adding a prefix for the State code, some States are deciding on completely new numbers.

"Businesses who have operations in all the States will be the worst affected. We are advising them to be clear of which States will have VAT and which will not.

"They may have to break up their pricing into two to cater to the requirements of these two methods of taxation. Overall, it will take more than a year for the new system to be completely set for smooth operations," said Mr Arvind Devanathan, Director - Indirect Taxation, Deloitte Haskins & Sells.

Many of the large corporates are now slowly made aware of the documentation and other requirements. Management consultants are unanimous that compliance in the next eight days is impossible. At best, a handful of corporates can be termed "reasonably ready," according to them.

"One of the key triggers for the market, especially in the next few weeks, would be the smooth implementation of VAT. Market is concerned about difficulties and there is a possibility of weakening of sentiment if VAT hits many roadblocks," said Mr Andrew Holland, Executive Vice-President, DSP Merrill Lynch.

Market participants are revaluating their predictions on key sectors including automobiles, pharmaceuticals, cement, capital goods and others. The new targets set for stocks in these sectors seek to assess the impact of VAT on these. Equity research is also considering the possibility of implementation impacts, including delays, trade agitations and possible penalties for corporates that are not fully compliant.

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