Today's businesses have become extremely dynamic because of the way they operate and extensive use of technology. This has resulted into execution complex transactions.
In India, indirect taxes encompass every area of an Indian business. Generally any transaction, whether in goods or services, attracts various indirect taxes. Indirect taxes are usually borne by the final consumer. Therefore if a business entity fails to anticipate the applicability of an indirect tax and does not recover the same from the consumer it becomes a cost to the entity and is a direct hit to the bottom line. Consequently indirect taxes have a direct bearing on the costs, pricing policy, cash flow and profitability and ultimately the competitiveness of an organisation. Hence it becomes critical to evaluate the impact of various indirect taxes on any given transaction.
Presently in India, services attract service tax, manufacturing attracts excise duty, imports attract customs duty and sale of goods attract sales tax (value added tax). Service tax, excise duty and customs duty are levied by the Central Government and the value added tax is levied by the State Government.
At PNK we provide comprehensive advice and assistance on indirect taxes. Our services broadly cover the following:
1) Tax structuring & planning services:
Setting up a new business or expanding an existing business attracts various indirect taxes. It is observed that indirect tax planning is generally done post execution of the arrangement; thus leading to loss of indirect tax benefits or credit, higher payment of taxes, inefficient indirect tax structure. Therefore it is essential that the transaction is evaluated, structured and planned specifically considering the indirect tax impact.
Our product would broadly cover the following:
2) Applicability test & reviews:
- indirect tax analysis on proposed transactions
- tax neutralisation/ optimisation advice
- agreement review/ drafting
- advice on setting up business in tax efficient manner
- identify mechanics to optimize tax credits and reduce cascading of taxes
Indirect taxation laws are subject to frequent changes and amendments. At times it is difficult to track these changes and ensure timely implementation. It is a good practice to undertake a regular health check or review (annual or half yearly) are conducted by Companies to ensure that no changes or amendments having significant impact are missed altogether.
We at PNK undertake such checks and reviews covering the following:
3) Indirect tax Compliance services:
- examine applicability of indirect taxes
- examine eligibility of tax credits and export benefits (as applicable)
- review statutory returns/ records and documentation
- evaluate tax optimization opportunities
- identify tax exposures and inefficiencies
- detailed exception report outlining observations
In today's scenario of technological development companies are using SAP or an integrated ERP to manage compliance. Further significant tax compliance are now mandatorily required to be done electronically. It is observed that increasingly the Companies are interested in outsourcing and centralising the tax compliances. This also ensures consistent tax treatment across locations with reduced legal issues.
Our product covers the following:
4) Tax Credit & set off services:
- set up a system or process to ensure data collation
- preparing worksheets for tax computation
- collating data for preparation of applicable tax returns
- ensure regularly and timely compliance of tax payments and return filing
- ensure compliance of similar tax requirements
In terms of the indirect tax provisions (service tax, VAT and excise) a manufacturer or services provider is eligible to claim input tax credit of tax paid on goods and services. The said credit can be utilized for payment of indirect tax liability. Thus the input tax credit is akin to cash on hand which can be used for making tax payments. It is essential that a manufacturer or service provider avails all the eligible input tax credit in terms of the applicable input tax credit provisions and optimizes the same.
Our product for credit mapping and optimisation cover the following:
5) Litigation Support & Representation services:
- identifying expenses on which tax is paid
- evaluate expenses on which input tax credit has not been availed
- evaluate the eligibility in terms of applicable input tax credit provisions
- put a system in place to ensure optimum input tax credit availment
Indirect taxation laws have always been complex and subject matter of interpretation/ litigation. This leads to the Companies receiving Show Cause Notices requiring them to explain the rational for following a particular interpretation/ claiming tax benefits, etc. This generally culminates into a long draw litigation matter. Further it is always advisable to obtain upfront clarification from tax offices on specified issue if there is a mechanism in place. We at PNK can assist the Companies in better handling and early closure of such matters.
Our services cover the following:
6) VAT Audits:
- representation before all adjudicating Authorities including CESTAT
- representation before Advance Ruling Authority
- representation before Ministry of Finance
- representation before Settlement Commission for settlement of cases
- day-to-day litigation support on notices, summons etc. received from tax authorities
Most States VAT Act contains provisions requiring dealers to submit a VAT Audit Report is prescribed format duly verified by a Chartered Accountant. PNK has the expertise to undertake such VAT Audit across the Country.
Our product for VAT Audits covers the following:
7) Due diligence review
- conducting State specific VAT Audits
- issue report in the specified Format
- advice to improve upon grey areas and other possible opportunities
As a first step to investment, a private equity firm undertakes a due diligence exercise on the proposed target. The due diligence essentially enables the firm to consolidate the financial and tax exposure. Based on these exposures the firm could take an informed decision about investments. We at PNK undertake a complete due diligence review covering financial and tax diligence (both direct and indirect).
Our scope would cover the following:
8) Legal compliance:
- reporting key exposures on account of various indirect taxes
- review pending litigation matters and report exposure/ disputes
- review compliance status
- report an material tax exposure due to non-compliance relating to indirect tax laws
Having a robust system to track and ensure compliance with applicable legislations across geographies is a key element of the Corporate Governance strategies of all companies. Due to operational difficulties or variations of legislations at different locations and multiplicity of laws business managers may overlook certain compliances. The result is a risk of financial loss, penalties, litigation and non-productive use of top management's time in sorting things out. In case of serious defaults there is no risk of loss of reputation.
Our product would broadly cover the following:
- detailed compliance checklist in CD
- preparing Compliance Reporting Organ gram
- legal compliance reviews