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Prepare for new tax regime
March, 11th 2010

When Ashok Dhingra was sent to Canada in freezing January by the law firm J Sagar Associates (JSA), where he is a partner, he had duty rather than vacation on his mind.

The firm wanted him to study the nuances of the Canadian goods and services tax, or GST, on which India is likely to model its own new indirect tax regime.

Dhingras trip is an example of how Indian law firms are gearing up for the proposed introduction of GST on 1 April 2011by training employees, recruiting new attorneys and studying GST of other countries.

Under the Union governments proposal, a single GST will replace a web of national, state and local taxes such as Central excise duty, service tax and value-added tax, making tax rates on almost all important goods and services uniform throughout the country.

It was earlier expected to be introduced on 1 April. The new regime will bring about fundamental changes in the practice of indirect tax law, and law firms realize they need to begin the groundwork now to be ready to meet the challenge.

Rohan Shah, partner at Economic Law Practice (ELP), calls GST a game changer as it will make lawyers knowledge of indirect taxes until now effectively redundant.

He said it will take at least a year of training and learning for tax lawyers to catch up with the new structure.

Dhingra of JSA agrees. It takes years to train a professional in a particular tax legislation. Over a period of time, they acquire knowledge of all legislation, he said.

Professional services firms also need to make (a) huge investment of billable time and, of course, money to retrain their teams to be ready to provide assistance to their clients (when GST is implemented), he added.

For instance, lawyers routinely argue their cases by citing previous judgements based on a particular law. But once GST is introduced, the basic principle of indirect tax law will no longer be the same.

This, says Dhingra, means previous Supreme Court rulings on the subject may not have a direct bearing on new cases, but only have persuasive value.

V. Lakshmi Kumaran, managing partner at law firm Lakshmi Kumaran and Sridharan, said his firm, too, had started preparing for GST.

To increase our understanding of GST, we have analysed GST of various countries like Australia, Canada, and (the) UK, he said. His company has also hired 12 new attorneys to help deal with GST cases.

Shah of ELP said the new regime will also bring a host of new opportunities with it for law firms, precipitating a spurt in legal advisory and litigation work.

Industry and companies will face a host of legal issues like tax compliance, exemptions, credit issues, domain of states and issues of constitutional validity of taxes, which would mean more work for the law firms, he said.

GSTs introduction will be accompanied by the adoption of a new direct tax code and International Financial Reporting Standards, which are also set to be implemented on 1 April next year.

When Dhingra was flying to Canada, he was still expecting GST to happen this April, the original deadline. The deferment, he said, has given the legal community an extra year to get ready for the new tax regime.

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