Rivals Hindustan Unilever Ltd (HUL), India's largest consumer packaged goods company, and Marico Ltd are joining hands for a shared cause: the goods and services tax (GST) regime.
They are busy making joint presentations to create a common set of industry practices to embrace the new indirect-tax system.
HUL is planning to tie-up with others, including Mahindra and Mahindra Ltd (M&M), Tata Motors Ltd, the Aditya Birla Group and the Essel Group, to widen the efforts and have a uniform platform. The objective is to avoid disputes and ensure continuity of business.
If indeed the recommendations of this informal alliance of companies are accepted, the industry will have a common set of practices for documentation that will minimize glitches once the new regime is enforced.
"We are suggesting best documentation models to other companies for a smooth way of doing business in the GST regime. We are planning to create a large-scale collaboration among companies," says Dilip Save, head of indirect tax at HUL. "It is always best to prepare before rather than acting after the GST is implemented."
He was talking at a seminar in Mumbai last week.
GST will create a common market in India where costs are likely to be lowered by allowing firms to offset tax paid on inputs, and consumers will, unlike today, know the indirect tax rates. Under this regime, tax will be levied and collected at the point of consumption.
GST will have significant impact across companies, government machinery and consumers. A big change it will catalyze is the way companies locate and carry out manufacturing, operational and logistics activities. It has missed an April 2011 deadline; the government is now working towards implementing it in April 2012.
"We've already made presentations to Marico, M&M, Aditya Birla Group and Essel Group. There is no precedence of GST, which is a logical and rationale move. Therefore, we need to develop a best industrial practice as and when the law is implemented," says Save. "We're talking to even our competitors for this to create a collaboration."
Marico executives, requesting anonymity, confirmed the development.
Debasis Ray, head of corporate communications at Tata Motors, says his colleagues, "do not recall any reach-out from Unilever."
Aditya Birla Group did not offer any comments to the report.
At least six other consumer packaged goods firms are planning to have a uniform structure ahead of GST to avoid delays and disputes. All of them said the informal alliance headed by big companies, including HUL and M&M, are looking at uniform methods of accounting, processing, record-keeping, documentation and technology platform aligned to the proposed GST.
"We are also taking inputs from various multinational corporations to identify the right IT (information technology) infrastructure and enterprise resource solutions to respond to GST needs," says Save, who is also the chairman of the indirect tax committee at lobby group Bombay Chamber of Commerce and Industry.
Consumer packaged goods companies distribute their products through extremely large and complex distribution networks and, therefore, GST will have a large impact on them, says Gautami Seksaria, founder and partner, Supply Chain Leadership Council, an organization of logistics professionals in India.
"(This) will also help a great deal with ensuring a smoother transition for suppliers, which are often common to several large companies," she says.
Enterprise resource planning developers are also helping companies to develop common standards, according to S.M. Kulkarni, corporate head, sales tax, M&M.
"It is not difficult to adopt a common practice," says Kulkarni. "We are also readying presentations on best practices that HUL can adopt while formulating the final draft."
GST will lead to a drastic change in the way business is carried out now, as firms would require to revaluate and reconfigure technology systems to support the tax regime, according to Rahul Jadhav, business manager (commerce-India/South Asia) at the local unit of technology services firm IBM. "It has to fine-tune the existing accounting process before GST implementation," says Jadhav.
Another food products company, Bunge India Pvt. Ltd, is also looking at HUL's proposed practices, according to Vivek Karwanyun, the company's general manager of supply chain.
In a parallel move, a government panel has proposed migrating the existing state and central value-added taxes to a common IT network to have a technological platform ready when the country introduces a common indirect-tax regime.
The empowered committee for IT for GST, led by Nandan Nilekani, has also proposed establishing a company that will develop and operate the IT infrastructure for GST. All the states and Union territories would have shareholding in the proposed firm.