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Country Rankings - India


  • Dec 05, 2017   India: reform

    All over the world we are witnessing ambitious reforms being attempted in the area of taxation. In the United States, Congress is on the brink of finalizing the most ambitious tax reform in more than 30 years. More on that later. In the European Union, certain member states and the Commission are pushing hard for harmonization of corporate tax rules and the creation of new tax rules for the digital economy. And globally the tax landscape is changing on a daily basis thanks to BEPS. Major tax reform efforts are often undertaken with the intention of making life easier for taxpayers. But they can be enormously disruptive for tax planning in the short-term, as taxpayers adjust to life under a new regime. Spare a thought then for taxpayers in India. There, they are still getting used to the idea of the national goods and services tax, often described as one of the most significant economic reforms in India's post-colonial history. Now they could be faced with a shake-up of direct taxation as well. By putting in place the GST regime this year, the current Government was congratulated for achieving in three years what the previous administration failed to do in ten. Will it be able to pull off a similar achievement with the direct taxes code? Reforming the outdated direct tax regime in a similarly expedient manner would represent a spectacular success for the Modi Government with regards to tax policy. But viewed in the light of the indirect tax reforms, perhaps it would be easy to underestimate the scale of the task at hand. This wouldn't be the first time such an undertaking has been attempted. Indeed, direct tax reform has a history stretching back as far as the GST legislation. But this project wasn't nearly as successful. The Modi Government eventually cancelled the Direct Taxes Code, first introduced in 2009, as the proposed legislation was known, because it had hung around Committee Land so long it had become outdated, which was rather ironic given its intent was tax code modernization. So perhaps taxpayers shouldn't get their hopes up too much. Indeed, the prospect that direct taxation may or may not be subject to reform may merely increase tax uncertainty for taxpayers in India. But at least they are already well used to that.
    Source: https://www.tax-news.com/asp/newsIND.asp


  • Nov 07, 2017   India: progress

    Doing business in India could also be equated with a sport or activity in which great physical and mental stamina is required to stay the course, so complex are its legal, regulatory, and tax systems. A walk in the park or a piece of cake doing business in India isn't. You could say it's more akin to a game of chess with a grandmaster, or scaling the north face of the Eiger, perhaps. Despite the Government's best efforts to enhance India's standing in the foreign investment community, some pretty fundamental issues have yet to be tackled satisfactorily for investors. A key one is the tendency for multinationals to be ensnared in judicial proceedings over disputed tax bills for years on end, with seemingly no resolution in sight. The Goods and Services Tax regime, as much as this reform was required, has also, not unexpectedly, had a difficult start to life. One notable set back occurred in October, when the Government was forced to scrap the proposed e-way bill, intended to remove non-tariff barriers to trading between states and help establish a single market across India – a move seen as crucial to unlocking India's vast economic potential. Nevertheless, things are on the up – about 53 places up as it happens. That's how much ground India has made up between PwC's 2017 Paying Taxes Index and the paying taxes element of the recently released 2018 Doing Business Index by the World Bank. So the Government must have gone some way towards fulfilling its long-held commitment to improving India's ease-of-doing-business ratings. Prime Minister Narendra Modi has always stressed that one of his main goals was to improve India's ease of doing business ranking, and this shows that, despite the fact that some high-level problems remain, much progress has been made towards making India a more efficient and less bureaucratic place to do business.
    Source: https://www.tax-news.com/news/India_Decides_To_Defer_EWay_Bill____75557.html


  • Aug 09, 2017   India: eavesdropper

    If it's anything like the Indian Government, perhaps it will go online . It used to be said that you should never discuss your financial affairs, especially with reference to tax, down the pub. You never know who might be listening. Perhaps drop the anecdote about your luxury cruise when you declared income of a few bucks the previous year? Indeed, it was once relayed to me by a tax professional how an ex-tax inspector he knew would frequent bars in order to gather intelligence on loose-lipped and potentially non-tax compliant business owners. Nice work if you can get it! Of course, keeping your tax affairs schtum is still sage advice if you're on a night out. But the world is moving on rapidly. Social media is where it's at now, and, not at all coincidentally, social media is where the Indian Government is at, scanning the twittersphere for the cyber equivalent of loose bar talk. Not that I'm condoning hiding things from the tax man. But walls have ears and all that. And so, it seems, do smartphones, tablets, and laptops.
    Source: http://www.tax-news.com/news/India_To_Look_For_Tax_Evaders_On_Social_Media____74909.html


  • Jul 11, 2017   India: momentous

    India's indirect tax reform promises to be a transformational, generational change that will unleash the full potential of this sleeping economic giant while modernizing the tax system and widening the tax base. And the Government deserves a great deal of credit for driving the reforms through in the face of hostility from state governments and with a political opposition which initially opposed the reforms for opposing's sake (ironically, the same opposition that proposed GST in the first place when in government some years ago – that's politics for you!). Nevertheless, this is a reform made by committee i.e. it recognizes several competing interests and consequently is one big, far-from-perfect compromise. And this is reflected in the somewhat complex three-tier state/central/interstate regime, which effectively has two standard rates (one is the norm), in addition to a reduced rate and a "luxury" rate. One suspects that in a country where most businesses will probably have little or no experience of value-added tax regimes, which by their very nature tend to be record-keeping intensive, this is going to take some getting used to. There is scope for simplification down the line, for example by consolidating the four rates — actually, it's potentially five, as the legislation allows room for states to apply GST in excess of 28 percent on certain items — to three or two. For the sake of taxpayers in India, I certainly hope the regime isn't added to and complicated further. However, I'm not optimistic. While China and India have taken substantial strides towards better tax systems for businesses, Deloitte's most recent Asia Pacific Tax Complexity Survey came to the rather unsurprising conclusion that, on the whole, the region's tax regimes remain complex. Except, of course, in Hong Kong and Singapore. Still, the survey did uncover some surprising results. One key finding was that there seems to be competing forces at work. On the one hand, Asia-Pac's emerging economies have poured resources into projects aimed at improving the predictability of taxation. China was cited as a notable example, where thousands of tax officers have recently received training, resulting in more consistent interpretation of tax laws and regulations, and more predictable handling of tax cases. Yet these efforts are being undermined on the other hand by frequent changes to tax regimes, which are being made both to modernize tax systems and to integrate BEPS measures into tax frameworks. Another noteworthy finding was that taxpayers in the region no longer consider tax complexity as their number one concern – they have come to accept complexity as a fact of life of doing business in places like China, India, and other leading emerging economies. No, predictability and consistency are now much more valued by businesses, and in their absence, firms are tending to take much more conservative tax positions.
    Source: http://www.tax-news.com/news/Indian_Firms_Grapple_With_New_Goods_And_Services_Tax____74632.html


  • Jun 27, 2017   India: chop and change

    So, VATs, GSTs, and taxes with similar characteristics are now a major source of revenue for governments all over the world, and such taxes are relatively easy for them to collect and enforce, which is likely another reason they have come into favor. However, consumption taxes are far from perfect. Because if not drafted precisely, VAT legislation is almost guaranteed to keep the tribunals and courts busy come rain or shine. Viewed from the outside, disputes between taxpayers and tax authorities can arise over the most trivial of details. Trivial to the layman maybe. But for affected taxpayers, it can sometimes be the difference between a viable business and an extinct one. In one of the most recent examples, litigators and judges in the UK and the EU have expended considerable time and energy arguing whether the card game "bridge" is a sport – and therefore VATable in certain circumstances – or a pastime, and therefore beyond the tax man's reach. And, according to the European court of Justice, bridge, it turns out, is a sport. As incredible as that decision appears, the key, as I understand it, is not the fact that you're sweating when participating in a few hands of bridge, but that you're competing. You'd think that there's been enough court cases around the world involving interpretation of VAT legislation for those drafting such laws to realize that their work must be as watertight as possible. But that doesn't seem to be happening. This is why I fear that the application of India's incoming GST – as mighty an achievement as the new law is for the Government – will be dogged with such problems in the years to come. The fact that the Government has chosen a complex four-tier rate structure, and is already chopping and changing which goods and services fit where within that structure, doesn't exactly inspire confidence. You live and learn, as they say. Sadly, governments don't!
    Source: http://www.tax-news.com/news/India_Cuts_GST_Rates_On_Numerous_Items____74570.html


  • Apr 27, 2017   India: one giant leap

    Remaining on the theme of deregulation, I mentioned last week how India is on the final straight towards the introduction of goods and services tax, which is due to replace a plethora of cascading and inefficient state and central indirect taxes, and usher in a much more rational and modern system of taxing consumption. I have always been slightly skeptical that GST would actually happen, fearing that the deadline would be pushed back ad infinitum, with the central and state governments unable or unwilling to fully embrace this unprecedented, dually administer law. However, after the President ratified the necessary legislation last week, even I am beginning to believe. Still, the transition is unlikely to be smooth. By all accounts, India seems quite unprepared for GST. The Federation of Small Medium Enterprises has said that 70 percent of SMEs are not even close to being ready for the upcoming changes, and in something of an ironic turn of events, the very businesses that have been urging successive governments to accelerate this long-awaited reform are now calling for the law to be delayed. With just over two months to go before the Government's preferred July 1 introduction date, companies with inter-state trade are now in a race to ensure compliance with the GST, which, due to the various compromises struck along the way, is by no means a simple law, even if it does simplify the existing system. Oh, how the tables have turned in India!
    Source: http://www.tax-news.com/news/Indian_President_Ratifies_GST_Legislation____74026.html


  • Apr 20, 2017   India: progress

    Finally, successive governments have tried, mostly in vain, to improve India's tax environment, and by extension the conditions for business and investment. It regularly seemed to be a case of one step taken forward, followed rapidly by two backwards. But things appear to be on the up. Slowly but surely, inch by inch, the current administration is presiding over a series of improvements that while relatively minor, could be nudging India in the right direction. Recent examples include the streamlining of tax registration procedures for newly incorporated companies, the roll-out of India's goods and services tax portal known as the GST Network, and the addition of more advanced pricing agreements which are helping to provide greater certainty of tax treatment for foreign companies in India; by February 28, India had signed 130 unilateral and 10 bilateral APAs. The jewel in the crown, as it were, would of course be the introduction of GST itself. And recent developments suggest that the proposed reform is finally on the home straight. On March 20, the Cabinet approved four bills crucial to the implementation of GST, and the Government remains confident that the tax will finally be in place from July 1, 2017. There's certainly a lot riding on India's largest tax reform for many decades. According to the IMF, India's economy will grow at a rate exceeding eight percent if it manages to see through the introduction of GST. So, the Government will be determined that it does. July 1 still seems like an optimistic target for such a large undertaking, but maybe, just maybe...
    Source: http://www.tax-news.com/news/India_Streamlines_Tax_Registration_For_New_Firms____73983.html


  • Jan 24, 2017   India: delay

    Another predictable event occurred in India last week. Yes, you've guessed it, the routine delay to the incoming goods and services tax. If India's GST reforms were a train, those on board could be forgiven for thinking that there is no destination, that the tracks must stretch on infinitely, and that they are destined never to leave their coach. However, there have been some encouraging sights sliding past the windows recently. That the constitutional amendment bill, required to levy GST on services, was passed at all was a major milestone last year. And the GST Council appears to have made swift progress towards settling some of the most important rules, such as GST rates and registration thresholds, etc. But perhaps the Central Government created a rod for its own back by insisting that GST be ready in time for April 2017. To roll out such a vital reform the length and breadth of India is going to take time, so perhaps a more realistic deadline should have been set after the passage of the GST legislation, of say two or three years. Taxpayers have got used to waiting after all, but the litany of broken deadlines hasn't exactly done wonders for the credibility of governments past and present. I hope, for India's sake, I can be proved wrong, and we're not back here in June discussing yet another GST deferment. Last, but certainly not least, is President Donald Trump's policies on trade, which are – and I'm reaching for a diplomatic description here – shall we say, robust. Indeed, some commentators believe the world is on the brink of a trade war. And they would have been emboldened in their view by the news that Mexico would quickly retaliate against any tariffs applied to its exports by the US. Others, however, are less pessimistic. The International Monetary Fund, for one, believes that Trump would be unlikely to follow through with his border tax threat because much of the damage it causes would be self-inflicted. In another interesting development, China indicated that it would turn the other cheek against any form of border tax on its goods, even going so far as to say that it would be the world's leading example of a freely trading nation. Trump's tariffs may also not materialize any time soon because of internal political wrangling within the Republican Party, with two rival border tax ideas on the table. The so-called border adjustment tax advocated in the tax reform blueprint signed off by House Speaker Paul Ryan last year is a markedly different approach to Trump's, and some say it would effectively usher in a form of value-added taxation into the United States for the first time. But President Trump, who finally broke his silence on the matter last week, is not a fan. He agrees with those observers who surmise that the border adjustment tax is an overly complicated way to achieve what are in effect the same goals as his proposed tariffs. Judging by their recent comments, and notably those from House Ways and Means Committee Chairman Kevin Brady, the Republican leadership in the House sees the border adjustment tax as a cornerstone of comprehensive business tax reform. That Trump demonstrably doesn't share this view suggests that we could be in for a period of stalemate on tax reform. Another period of stalemate, that is.
    Source: http://www.tax-news.com/news/India_Delays_Goods_And_Services_Tax____73213.html


  • Nov 07, 2016   India: expeditious

    I've watched India's GST debacle from the bitter beginning, and had formed the belief that, after year upon year of broken promises, the tax would never see the light of day. However, now, I've been pleasantly surprised by the uncharacteristic speed with which some of the final, essential steps needed to implement this long-awaited tax reform have been taken. The Rajya Sabha's landmark vote in favor of the tax took place in August, and by early September more than half of India's states had ratified the constitutional amendment bill, removing a major roadblock to the introduction of GST. By the end of the month, the GST Council had been formed and already resolved the tricky question of the GST registration threshold. The digital framework underpinning the new tax is already well advanced, and there is the very real prospect that GST could be in place by April 2017 after countless false starts. That is, if lawmakers can agree on the four-tier GST rate structure, which will surely add much needless complexity to a law intended to simplify India's indirect tax system. I suppose a four-rate GST still represents a vast improvement on the existing hodge-podge of inefficient and cascading indirect taxes, and with so many stakeholders to please, the GST Council was always going to struggle to find a single rate that would please everybody. But I'd hate to see all the good work of recent months unravel at the final hurdle.
    Source: http://www.tax-news.com/news/Complex_FourRate_GST_For_India____72666.html


  • Aug 23, 2016   India: progress

    Remaining on the subject of consumption taxes, the approval by India's parliament of the GST constitutional amendment bill has been one of the most significant developments in international tax recently. And the Central Government was given a considerable boost with the news that the state of Assam has decided to back the change. But, as I touched on in last week's piece, in a sense this is only the first hurdle that must be overcome before the tax becomes operable. Unfortunately, the path towards GST remains strewn with obstacles. So, what needs to happen next to make GST possible? Several things in fact, legislatively, administratively, and technically. Assam's announcement was a good start, but each of India's 29 states will separately have to pass legislation for the state-level component of the three-tier GST. Additional legislation also needs to be approved at Central level, including the central component of the GST, and the Integrated GST (IGST) on inter-state trade. However, before this can happen, half of the states must ratify the initial constitutional amendment bill to allow the President to approve the notification to amend the constitution. This would trigger a 60-day deadline, within which the President must appoint a GST Council. This Council will be chaired by the Union Finance minister and include all state finance ministers and will have quite a task on its hands. On the Council's considerable checklist will be, among others: determining GST rates, including reduced rates, if any; goods and services to be exempted from GST; when GST should be extended to petroleum products; place of supply rules; administrative rules; and how disputes will be resolved. This last item is likely to be a particularly thorny issue, given the overlapping nature of the GST regime, and the different competencies involved at state and central level. Only once these issues are resolved can parliament pass the necessary GST and IGST bills, which will be based on the Council's recommendations. Not only this, but the success of GST is likely to rest on the performance of an IT platform that will serve as the system's nerve center. Will it be up to scratch? Suddenly, April 1, 2017, looks frightfully close.  The effort being expended by India on finalizing its GST regime is an indication of how difficult it is to make value-added tax-type systems operate seamlessly within a federal constitutional structure. Canada for example has tried to mitigate the administrative burden of operating provincial GST and a federal GST by creating the Harmonized Sales Tax. However, British Columbia thought HST worse than the old system, and has decided to go back to its former PST regime.
    Source: http://www.tax-news.com/news/First_Indian_State_Approves_Goods_And_Services_Tax____71960.html


  • Aug 18, 2016   India: on the cusp

    Well, I never thought I'd see the day. No, don't worry, I haven't taken leave of my senses and put the family fortune into Bitcoin. I'm referring to the approval by India's Rajya Sabha, the upper house of parliament, of legislation that will, hopefully, pave the way for the introduction of a national goods and services tax system. It's not often that a new tax should be so celebrated, but the GST isn't just a victory for simplification (well, almost at three taxes in one). It's also being seen as a major triumph for the BJP Government and its reformist credentials. Certainly, it has taken Narendra Modi's Government two tortuous years to get to this point, even though it was one of its top priorities. But it has accomplished far more in those two years than the previous administration – whose idea GST was – had achieved in more than 10. However, where India and taxation are concerned, things are rarely straight forward. This isn't a done deal yet. The Constitutional Amendment Bill passed on August 5 lays the groundwork, but the architects have yet decided on some key features of the structure. For a start, there is just the small matter of the state and central governments getting together to agree GST rates, while various other key parameters like registration thresholds and exemptions have been kicked down the road. What could possibly go wrong! Staying in the subcontinent, Sri Lanka has had its fair share of problems in the recent past, including a protracted and brutal civil war, which left many innocent people on this beautiful island terrorized. But it's good to know that a nation state with legal checks and balances still functions. At least, that's the impression I got when reading of the Supreme court's decision to throw out the Government's four percent VAT hike. At a time when certain governments feel justified in making far-reaching changes to tax rules without the consent of the legislature, or certain countries can change their political leadership at the drop of a hat without the consent of the electorate (no names, no pack drill), little Sri Lanka could teach the West a thing or two about democratic government!
    Source: http://www.tax-news.com/news/Indias_Upper_House_Finally_Agrees_To_Goods_And_Services_Tax____71878.html


  • Jun 06, 2016   India: divergent

    And it's another step backwards for India this week, following the publication of the details of its new "equalization levy." This is India's version of the "digital taxes" we are seeing spring into place all over the world in response to the OECD's BEPS recommendations, which in essence seek to tax imports of digitally supplied goods and services. Except that in India's case, its own digital tax diverges from these recommendations, as well as from international practice in this area, and could lead to instances of double taxation according to the International Chamber of Commerce. Indeed, the ICC is worried generally about the international response to BEPS, noting that a number of prominent economies have deviated from the recommendations in one way or another. It has urged governments to consider the broader implications of their actions on global trade and investment, mindful that an inconsistent response to BEPS would undermine the whole principle of the project. Asking governments to look beyond their own narrow self-interest, you mean? Good luck with that!
    Source: http://www.tax-news.com/news/India_Publishes_Equilization_Levy_Rules____71364.html


  • Jun 01, 2016   India: déjà vu

    India is another country with a nightmarish tax code, and when headlines like the Income Tax Department's decision to appeal a tax case against Vodafone to the Supreme Court (one of several cases the tax authorities have pursued against the company recently), foreign investors must heave a collective sigh, and think to themselves 'oh, here we go again.' It doesn't matter that, as Finance Minister Arun Jaitley countered in response to criticism of the appeal, the Indian Government believes it has a strong case in this instance. Because, in a sense, the damage to India's tax framework has already been done by years of drift in which the Indian tax code has got steadily more complicated, and grown riddled with trapdoors ready to swallow unfortunate taxpayers. The current Government is to be congratulated for its ongoing focus on 'ease of doing business,' as it likes to call its reforms in the area of tax administration and compliance, and has achieved many improvements in its less than two years in office. However, the statistic that there was USD82bn worth of tax cases pending before the 1st Appellate Authority when Jaitley announced his 2016/17 Budget in February is an indication of the size of the mountain the Government must scale.
    Source: http://www.tax-news.com/news/India_Allowed_To_Appeal_Landmark_Vodafone_Ruling____71231.html


  • Mar 07, 2016   India: injudicious

    Another nation where tax deductions seem to have gotten out of hand is India. But I'm not quite sure what to make of the 2016 Union Budget, announced recently by Finance Minister Arun Jaitley, which, supposedly, is a continuation of the Government's campaign to simplify India's nightmarish tax code. There's certainly some interesting proposals in there, not least the new patent box regime, which seems to have come out of left field, especially as these days patent boxes are rather frowned upon by the arbiters of right and wrong in international taxation (i.e. the OECD and the EU). And I can see how a patent box regime would fit with the BJP Government's modernization agenda, as it attempts the difficult transition from a low-value manufacturing economy to a high-value-added "knowledge" type economy. But perhaps a patent box isn't a priority for India right now. Would such a thing be sufficient to attract hi-tech firms to India given that the rest of the tax system is such a shambles? A phrase Jaitley is fond of using is "ease of doing business." India must, he says, improve its ease of doing business. And he's right. The World Banks's 2016 ease of doing business index ranks India 130th out of 189 jurisdictions. If you can believe it, that's one place behind the West Bank and Gaza Strip. India's ease of paying taxes ranking is even worse: 157th. Whether a true reflection of the situation or not, these ratings nevertheless give some indication of the colossal task at hand, and perhaps it might be beyond the reformist credentials of Prime Minister Modi. It's easy for me to say of course, for governing India must feel like trying to change the course of a super-tanker at full speed with a defective rudder. But maybe Jaitley should be looking at the basics. If you're trying to repair a weak structure, strengthening the foundations might be a good place to start, rather than the addition of a new extension. 
    Source: http://www.tax-news.com/news/India_To_Introduce_Patent_Box_Regime_CbC_Reporting____70569.html


  • Jan 05, 2016   India: dysfunctional

    Another little known fact globally (and this is one I haven't made up for effect) is that India's film industry outstrips that of Hollywood itself, in terms of pictures made and bums on seats (if you're interested, Bollywood made 1,602 movies in 2012 compared with Hollywood's 476). However, when it comes to tax reform, the Indian legislature is starting to make the US Congress look positively decisive and dynamic! Prime Minister Narendra Modi's Government has said all the right things to foreign investors about tax since it has been in power, and has made steady, if unspectacular, progress towards improving the country's notoriously difficult corporate tax environment. However, I said some time ago that the pending goods and services tax legislation, which is widely acknowledged as the most important tax reform since independence, would provide a litmus test of the Government's reformist credentials. And unfortunately, it is a test that it appears to be failing. To be fair to the Government, it's not for lack of effort. But there's not much it can do when the Opposition (largely made up of the Congress Party), uses its majority in the Rajya Sabha (upper house) to oppose for the sake of opposing, which appears to have been the case during the recently concluded winter session of parliament. All so ironic – and, it has to be said, not a little spiteful – given that the GST reform was the Congress Party's idea in the first place. But I suppose it's just another demonstration of how dysfunctional India's legal framework can be, and how incredibly difficult it is for meaningful change to be brought about.
    Source: http://www.tax-news.com/news/India_Will_Fail_To_Introduce_GST_On_Schedule____70026.html


  • Dec 22, 2015   India: talking

    I’ve written much in these columns about the measures Narendra Modi’s Government has taken to improve India’s tax and investment frameworks. But it isn’t purely on the domestic front that Modi must seek change if he is to unleash some of India’s true economic potential. He must also look outwards to India’s major trading partners. So that’s why India receives an encomium this week for its part in persuading the negotiators of the proposed India-European Union free trade agreement back to the table after a long hiatus. And not before time. Trade data from the European Commission shows that trade between India and the EU is growing strongly even without an FTA in place. However, while the EUR72.5bn of two-way trade in 2013 sounds an impressive figure, it’s not as impressive as it actually could be. At the moment, in monetary terms, what the EU and India trade in a year, the EU and China trade in about two to three months. Yes, China’s economy is larger than India’s, but trade volumes with some of the EU’s smaller trading partners also outstrip EU–India flows. For example, bilateral trade with South Korea, which has an FTA with the EU, was EUR82bn in 2014. And total two-way trade between the EU and Brazil, which is not much larger than the Indian economy, was just under EUR90bn last year. Indeed, it is still staggering that given an industrious population of over a billion people, India’s GDP, at about USD2 trillion, was only the ninth-largest in the world last year, according to most measures. That’s slightly smaller than Italy, and more than 16 times smaller than the United States. Clearly, India’s potential is huge. But its shackles first need removing before it will be realized.
    Source: http://www.tax-news.com/news/India_EU_To_Restart_Free_Trade_Talks____69980.html


  • Nov 16, 2015   India: committee land

    The Indian Government loves a committee. It seems there's no problem that can't be solved by a panel of distinguished former judges, lawyers, academics, and senior bureaucrats, especially in the area of taxation. Except that, have any of them really solved anything? Not that I can see. Committees were a favorite tool of the former Congress administration when a particularly complicated knot in tax law needed unravelling, and given that India's reputation in the eyes of foreign investors plunged, we could justifiably conclude that they achieved diddly squat. While I admire the direction that the current Government is taking on tax and the economy, it seems to be falling into a similar trap. Since the BJP won office last year, we've had committees on the proposed goods and services tax, on India's conversion to IFRS, and on resolving retrospective tax disputes, among others. Indeed, there is a danger that the bewildering array of special tax committees just adds to the overall confusion that seems to accompany Indian tax legislation at every step. At the end of October, the Ministry of Finance constituted a committee tasked with recommending ways to reduce tax disputes between the Government and large businesses. Sounds like a good idea doesn't it? I suppose so. But then what's the grandly titled High-Level Committee on tax, announced as part of the 2014 Budget, for then? And why has it just had its remit extended by a year? Aren't both committees basically trying to do the same thing? You'll have to ask the Government about that. But be warned. It might take a year or two to get the answer, probably from a specially constituted committee set up to examine what each committee is doing, likely staffed by distinguished former members of former committees. On a serious note though, perhaps government by committee is a subconscious acknowledgment by the Government itself that it doesn't have all the answers to India's problems.
    Source: http://www.tax-news.com/news/India_Extends_Life_Of_HighLevel_Tax_Committee____69677.html


  • Oct 12, 2015   India: out of the box

    India is another country that benefits from these financial flows, and is also a country making frequent appearances in this column. But why wouldn't it when life there is rarely dull! Recently, Prime Minister Narendra Modi's Government has been re-building bridges with foreign investors burned so disastrously under the previous regime, and it appears to be keeping up the good work. After clearing up the minimum alternate tax issue in September, the Revenue Department commenced a new dialogue with business representatives to help it shape future tax policy in a more appropriate way. Indeed, the fact that the Finance Ministry is now prepared to think "out of the box" (its own words) on tax policy demonstrates how fast attitudes are changing. Further evidence was witnessed recently when the Government – at long last – appointed an arbitrator to help bring to a close its damaging tax dispute with Cairn Energy, signaling a long overdue softening of India's position in the case. All that needs to happen now is a fundamental overhaul of India's indirect and direct tax regimes. Okay, I'm getting a little carried away. Still, delivering the GST, which is almost near the finish line, would probably be an achievement enough. Perhaps we're asking too much from the Government to deliver the latter.
    Source: http://www.tax-news.com/news/Indian_Firms_Discuss_Tax_Reform_Direction____69317.html


  • Sep 29, 2015   India: determined

    There certainly seems to be no lack of determination from India's leadership for change, at least on the tax front. And while the Indian Government's decision to cancel the minimum alternate tax on foreign institutional and portfolio investors, and, more recently, foreign companies lacking a permanent establishment in India, sounds, in the grand scheme of things, like a run-of-the-mill technical measure, it sends perhaps the strongest signal yet about the Government's tax and investment policies. It is an indication that India is determined to break with the bad practices of the past, which sowed so many seeds of uncertainty about India's legal framework and damaged its reputation with foreign investors, and even with other governments. It's a shame that the BJP Party didn't repeal the retrospective tax measure introduced by the last administration under the 2012 Finance Act, but this is a good move nonetheless. And where India and tax policy is concerned, a certain amount of patience is required, so you can't expect too much too soon.
    Source: http://www.tax-news.com/news/India_Confirms_MAT_Exemption_For_Foreign_Firms____69249.html


  • Sep 07, 2015   India: sensible

    India seems to go backwards and forwards in this column. A couple of weeks ago, India was execrated here after Cairn Energy announced it had resorted to some serious measures in order to settle a tax dispute, which, according to Finance Minister Arun Jaitley himself, is just one of almost 40,000 cases that were pending before the various income tax tribunals and courts. But, this week, the Government deserves praise for its sensible decision to follow the recommendations of the Shah Committee and not impose the minimum alternate tax on foreign investors retrospectively. Retrospection in the context of taxation is, unfortunately, something that is now associated with India, thanks to the previous Government's tendency to resort to this unwise policy. It is a reputation that Prime Minister Narendra Modi's Government is trying hard to shake-off, and it is making slow but sure progress towards this goal, in no small part because it has declined to use retrospective tax measures. Foreign direct investment figures have been encouraging. According to data released by the Reserve Bank of India, the manufacturing sector saw a 50 percent jump in FDI in 2014/15, reversing three consecutive years of declining investment. Total FDI was the highest in five years, reaching USD16bn. Nevertheless, India's woeful rankings for ease of doing business and simplicity of taxation indicate that the path ahead is a long one for Modi. But at least he has put India on the right one.
    Source: www.tax-news.com/news/India_To_Exempt_Foreign_Investors_From_MAT____69045.html


  • Aug 24, 2015   India: quarrelsome

    I've heaped a lot of praise on India in the year since the BJP Party came to power. But the Cairn Energy dispute is a reminder that, when it comes to tax matters, the Indian Government continues to move in mysterious ways. The Government is saying all the right things: that the tax laws should not be used to "terrorize" foreign investors. However, it's debatable whether the message is really getting through. Cairn Energy, exasperated with the Government's lack of interest in resolving its highly publicized tax dispute with the company, has resorted to launching arbitration proceedings via the dispute resolution mechanism provided for in the India/UK bilateral investment treaty. As Cairn's Chief Executive, Simon Thompson, implied when speaking on this matter recently, such developments are hardly a great advert for India. The Government is to be applauded for bringing to an end dozens of tax disputes with multinational companies. But, in reality, it has only scratched the surface. Finance Minister Arun Jaitley himself revealed last month that more than 37,000 tax dispute cases were pending before the various income tax tribunals, with INR1.45 trillion (USD14bn) in potentially outstanding tax at stake. Whether the Government is prepared to forgo such a large sum will test its pro-business credentials.
    Source: www.tax-news.com/news/Cairn_Energy_Seeks_Damages_From_Indian_Tax_Agency____68919.html


  • Jul 27, 2015   India: inch-by-inch

    Something of a tax reform theme emerges from the news this week. And unlike in some countries (I'm talking about you in particular USA), some governments and legislatures are actually putting words into action for a change. Let's start in India, where the Government is inching ever closer to its goal of introducing the highly anticipated goods and services tax (GST) in April 2016. It's not often you hear that a tax is expected to actually improve the functioning of a country's economy and lead to higher levels of commerce and growth, but this will probably be the case in India, where at the moment several inefficient indirect state taxes exist, some of which cascade as goods are traded across state borders, discouraging intra-Indian trade. The GST promises to sweep these taxes away and replace them with a cleaner system, which will be levied concurrently at central (federal) and state levels akin to Canada's Harmonized Sales Tax. Except that getting the states to agree on it has been a far from harmonious process, with many states expecting to collect less in tax as a result of GST. The BJP Party, which has won back the confidence of domestic and foreign investors alike, has made GST one if its top priorities, and has managed to push the legislation further along the legislative road in the space of a year than the previous lot did in 10. Encouragingly, the upper house of parliament's GST panel largely endorsed the proposed change to the Constitution that will be needed before GST in its proposed form can be introduced. However, it did recommend that the central Government provide a more extensive revenue compensation package to the states than it has been prepared to give, which has been one of the major stumbling blocks all along. There are signals coming from the Government that it is prepared to relent on this point. But some crucial details still need to be finalized, and the indications are that opposition parties will block the bill quite easily in the upper house, where a two-thirds majority is needed to change the constitution, if their demands aren't met. Yet again, it could be a case of so near, but yet so far, for tax reform in India.
    Source: www.tax-news.com/news/Indias_GST_Reform_Takes_Step_Forward____68672.html


  • May 18, 2015   India: one step forward...

    As the old saying goes, "if it sounds too good to be true, then it probably is." India seemed to be on the cusp of doing something remarkable, introducing a major – perhaps the major – tax reform of the post-war era, when the lower house of Parliament approved an amendment to the national constitution vital to the passage of the proposed goods and services tax (GST) legislation. But then the upper house came along and spoiled the party, by delaying its vote on the bill and sending the amendment back into a seemingly endless loop of legislative scrutiny of Kafkaesque proportions. But should we really be surprised, given India's form in this area? These potentially ground-breaking reforms, which could transform the tax and investment environment for the benefit of India's ailing economy, have a habit of going round in circles without ever seeming to reach their destination. The GST is one such reform. Even though it is a tax, it will surely mark an improvement on the present situation, with inter-state commerce caught in a complex and inefficient web of indirect taxes levied at state and central level. But I had a sneaking suspicion that the International Monetary Fund was getting a bit over-excited when it recently factored the introduction of the GST into its economic growth forecast for India. First proposed a decade ago, the proposed GST has been caught in the crossfire of a battle between the states and the Centre over tax jurisdiction. Even though Finance Minister Arun Jaitley has prioritized this reform above many others, I think we'll be lucky now to see it in April 2016, as hoped.
    Source: http://www.tax-news.com/news/Indias_GST_Progress_Derailed_By_Upper_House____68059.html


  • Mar 12, 2015   India: redeems

    As Finance Minister Arun Jaitley observed recently, there is a great deal of curiosity about India among foreign investors. However, India is also famed for its epic inefficiency and bureaucratic inertia, and patience is most definitely a virtue for any investor dealing with the Indian authorities. So the Budget announced by Jaitley recently must have seemed to some like a Government traveling towards reform at warp speed, rather than the customary snail's pace, as corporate tax cuts were lined up and various tax breaks proffered to encourage vital investment in infrastructure and manufacturing. However, perhaps the BJP Government's most commendable act so far on the tax front was its sensible decision to rein in its somewhat over-zealous tax inspectors and drop tax disputes against a host of multinationals based on questionable interpretation of the law. Indeed, India seems to have got its mojo back altogether, with confidence about the economy higher than it's been for a number of years, in great contrast to the depressing pall that seemed to hang over the tail-end of the previous Congress-led Government. Whether this optimism can be translated into real progress remains to be seen. On closer inspection, the 2015 Budget only really just scratches the surface of the efforts needed to really transform India into a global economic powerhouse; by most measures, India is only the world's 10th largest economy, a statistic which demonstrates how it continues to underperform. Taxes were tweaked, rather than reformed. And the new Government has merely tinkered with the amendment to the Income Tax Act that was introduced by the former regime in 2012 to tax foreign companies buying Indian assets – a change that did so much to sour the investment environment. The Government could have just done away with it altogether. It is likely that additional clarification to this crucial piece of tax legislation will be needed, which is far from ideal. Still, as small as they are, these new steps seem to be going in the right direction.
    Source: www.tax-news.com/news/India_To_Cut_Corporate_Tax_Rate_By_Five_Percent____67425.html


  • Feb 12, 2015   India: acts

    It's been a long time in coming, but at last some good news from India. The BJP Government, which replaced the Congress Party last year, has consistently talked of the need to stabilize the legal and tax framework, to remove bureaucratic roadblocks to investment, liberalize foreign investment laws and rein in its tax inspectors. Worryingly though, as the months wore on, it seemed that India's characteristic brand of governmental inertia was beginning to grip Nahrendra Modi's administration, as it had done so tightly with its predecessor. The former Government also talked a lot about how India's business environment must be made more welcoming to foreign investors, but its missives on the subject were rarely able to penetrate an intensely bureaucratic administrative machine and reach the parts that they were supposed to reach. Fresh from electoral victory, Finance Minister Arun Jaitley's first Budget was a cautious affair, and the business community must have been exasperated at his failure to reverse the former Government's retrospective tax measure, which takes most of the credit for destroying India's reputation with foreign investors. A growing list of multi-billion dollar tax disputes with multinationals also continued to drag on towards the end of the year, unresolved. The formation of yet another high-level committee to advise on the uncluttering of the tax system was also not exactly encouraging, given their history of achieving pretty much nothing. But a major breakthrough did seem to arrive in late January, when it was reported that tax officials had been told not to appeal a court ruling made in favor of Vodafone last year, a decision which is expected to lead to the dropping of more than 20 similar cases; it was swiftly followed by the dismissal of the tax department's case against Shell. At around the same time, Jaitley told a conference of tax officials that it was time for them to stop being so adversarial in their pursuit of tax. Perhaps this time the message is really getting through? It is hard to quantify to what extent FDI into India has been affected by Government policy in recent years. However, according to UNCTAD, FDI shot up by 25 percent in 2014, which offers some sort of clue as to what investors think of the new Government, and, of course, the old one. Indeed, in a recent interview with India's Economic Times, Gita Gopinath, a Harvard economics professor, claimed that perceptions about India have changed "dramatically" and that there is now a "great deal of confidence" among investors. Nonetheless there is still much to do. Perhaps if the Government can finally convince the states to adopt the long-awaited, bewhiskered GST, people will begin to believe that India is capable of real change. We shall have to wait and see.
    Source: www.tax-news.com/news/Shell_Wins_Indian_Transfer_Pricing_Dispute____66463.html


  • Nov 25, 2014   India: judicial

    Something of an Asia-Pac flavor in this week's edition, but also something of a mixed report card for a region that is often praised, and rightly so, as the most economically dynamic in the world as of now. Let's start with India. It had a difficult start to life as a country in its own right thanks to the rather hasty handover of sovereignty by the war-spent British, India's former colonial masters, in 1947. Yet one gets the sense that this country of 1bn souls is grossly underfulfilling its economic potential. By now, given the resourcefulness and industriousness of its people, it should surely be giving China a run for its money as the world's leading emerging economy. But it isn't, and it isn't even close. Most official measures put India in about 10th place in the list of economies by size with a GDP of roughly USD1.8 trillion. China's GDP is over four times the size, and, to really put it into context, the USA's GDP is nearly twice the size of China's. India hasn't even overtaken Italy in 9th place yet, which is saying something. There are many economic, social and cultural factors why this is the case, but there is no room here for an exposition on the failings of the Indian economy. So given the editorial confines imposed by this column, I'll cut to the chase and blame the Government. Actually, I've been leading you up the garden path a bit here here, because I intend to award India an encomium. But not for anything that the Government has done. It's because the courts seem to have made a sensible decision in defiance of the tax authorities by supporting Royal Dutch Shell's arguments in a transfer pricing dispute, a ruling which followed hot on the heels of the same court's support for Vodafone in another tax matter (no, not that tax matter — that hasn't been resolved yet). I'm not suggesting here that India's judiciary is usually in the pocket of the Government – again that's an essay for another day. But the Government certainly cannot be described as sensible, at least not most of the time, when it comes to taxation. Prime Minister Narendra Modi promised to be sensible before being swept to power in a landslide victory for the BJP in May, by rebuilding the bridges with foreign investors burned by the previous administration's dash for tax revenue, including the reputationally disastrous 2012 retrospective tax amendment. But then he must have looked at the Government's books and decided that now's not the time to be giving up the chase. Yes, only 3 percent of Indians actually pay tax so the money has to come from somewhere. But there must be a better way to approach the deficit than frustrating investors to the point that they decide to ignore you, which is the danger for India. It's worth noting that these court rulings can be appealed. Choose your next move very carefully, Mr Modi...
    Source: http://www.tax-news.com/news/Shell_Wins_Indian_Transfer_Pricing_Dispute____66463.html


  • Aug 28, 2014   India: a good tax?

    I don't normally hand out encomiums to countries introducing new taxes, but in the case of India it might just be warranted. India has had plans on the drawing board to introduce a goods and services tax for about 20 years. The proposals are now more or less complete but administration after administration has failed to jump the last hurdle due to opposition from state governments unhappy at the prospect of losing tax sovereignty. It should be pointed out that the GST isn't an additional tax as such, but replaces a cornucopia of existing taxes including central sales tax, the state sales tax, entertainment tax, lottery tax, electricity duty, and value-added tax, and some economic commentators have suggested that replacing several inefficient taxes with one slightly less inefficient one could actually contribute towards economic growth while boosting the coffers of the central and state governments. That remains to be seen. It has to happen first. Encouragingly, Finance Minister Arun Jaitley wants the new Government to sew up the GST reforms as quickly as possible. If recent history is anything to go by, that'll be the day! This is a government that has pledged widespread legislative and administrative change and is attempting to carry it out through a bureaucratic machine that seems very change-resistant. If nothing else it's a signal of intent, and I am prepared to cut Jaitley a little slack if things don't quite go according to plan in the early months.
    Source: www.tax-news.com/news/Indias_Jaitley_Switches_Focus_To_GST____65584.html


  • Jul 24, 2014   India: could do better

    Arun Jaitley's first national budget as Indian Finance Minister comes at a critical juncture for India. Most economists would probably agree that India should be challenging China and the major advanced economies a lot harder than it is right now, but the reason it isn't is because its enormous economic potential seems to have been squandered. Jaitley's declaration that he is "duty bound" to usher in a policy regime that will result in higher growth seems to have been generally well received by those with a stake in the Indian economy. But excuse me if I play the contrarian here! True, the budget eases some barriers to foreign investment, and places an emphasis firmly on investment in industry and infrastructure which is sorely needed. But after leading investors to believe that the previous Government's retrospective tax measure – the thing that has done the most damage to India's international credibility – would be consigned to history, Jaitley performed a feat of linguistic gymnastics in his budget speech that seemingly endorsed and condemned retrospective taxation all at the same time. The upshot is that the Government won't introduce retrospective tax laws that lead to "fresh" tax liabilities, but existing cases resulting from the 2012 amendment must proceed to their "logical conclusion," whilst a committee will be set up by the tax authorities to examine future cases that arise. At least I think that's what he meant. Either way, it kind of undermines Jaitley's repeated pronouncements on the importance of tax certainty, especially with the Direct Taxes Code once again kicked into the long grass. But then perhaps we shouldn't rush to judgment: the BJP has only just got the keys to the house, and the social and economic challenges facing India are enormous. Rome wasn't built in a day.
    Source: www.tax-news.com/news/India_Budget_Targets_Tax_Certainty____65246.html


  • Jun 02, 2014   India: on the warpath

    Staying with EOI, there is something quite strange about the Indian Finance Minister's plea this week to Switzerland to expedite its ratification of the OECD's convention on mutual assistance in tax matters. This is the man who has palpably failed to deal with the Indian state's various tax spats with international companies, including the issue of retrospection, who has failed to make any progress with the new (OK, new-old) Direct Taxes Act or the GST dossier, and who has now left office, replaced in Jarendra Modi's new administration by Arun Jaitley. The latter is also to be Defence Minister, and it's not clear who in reality will run tax in the new India. Still, that doesn't help us to understand why Mukherjee was attacking the Swiss. Probably he has Indian oligarchs in his sights rather than MNEs, but it is a strange thing to do when one is just a day away from losing office. No doubt there is some underlying, obscure bargain which will never be revealed to us. Transparency is what India's administration badly needs, but probably isn't about to get, despite Mr Modi.
    Source: http://www.tax-news.com/news/India_Pressures_Switzerland_To_Ratify_OECD_Tax_Convention____64819.html


  • Apr 17, 2014   India: to get more complicated

    Well that wasn't too successful, was it? All that glitters is not gold. Especially in tax. I am torn between "Italy Confirms Tax Cuts," which sounds clear enough, and "India Will Enhance Tax Administration," which is indeed much needed. But this is just another Committee: it is a rule of politics that when you can't work out what to do about a given situation, or if what you would like to do will upset too many of your supporters, then you appoint a Committee of the great and good to think about it for two years before telling you that they can't think of what to do about it either. So that leaves us with Italy. Mr Renzi looks nice, doesn't he? I would happily have dinner with him, and I might even agree with some of his ideas, especially if he feeds me enough Tuscan Red. The trouble is, he doesn't have any money. I don't mean that he couldn't afford to buy me a glass of wine, fussy as I might be. I was reading an article today in a well-known daily newspaper which used to be produced in Paris (and now you know which one) dealing with the disaster of Italian railways as an example of the long-term failure of the Italian state to improve the efficiency of public services and stimulate regional enterprise. They said that EUR550bn had been spent on trying to lift up the Mezzogiorno (south of Italy), and it now lagged even further behind the North than when they started. Don't tell me; that's where I have a cottage, and I love the fact that it's like living in the 19th century. But we know who got the money, don't we? The Sopranos. The railways are important as a particularly glaring example of how money has been spent heedlessly without the smallest attempt to improve efficiency, but with a careful focus on maintaining or even increasing employment. Last week I took a taxi from Bari to my local town, and the taxi-driver sat in wonder as a man (of course a man) emerged from his cottage to crank up the barriers on his level-crossing and allow us to pass. On average, it's about 13 minutes to wait at that level-crossing, on the main road to Taranto, from beginning to end. You learn to carry a newspaper with you. "I've never seen that before!" he said in amazement. What with the Sopranos and the Unions, Mr Renzi is between a rock and a hard place. I don't know what will cure Italy, but it's not Matteo Renzi, for all his good intentions.
    Source: www.tax-news.com/news/Indian_Panel_Will_Seek_To_Enhance_Tax_Administration____64328.html


  • Apr 10, 2014   India: dreams on

    Ha, ha! The Indian Government has produced another rescension of the Direct Tax Code, just in advance of the general election, whose timing either demonstrates a fine disregard of political reality on the part of the Finance Ministry, or more probably is just accidental. Either way, we shouldn't pay too much attention to it, since it is 100 percent a hostage to political fortune, and is sure to be changed again several times before being enacted, if it ever is. But we can at least notice the quite hilarious change to the "indirect transfers" wording, which underlines the great chasm of unreality that exists between the Indian tax authorities and the rest of the world. Under the Government's original DTC proposals, indirect transfers would have been taxed in India if the companies involved had at least 50 percent of their assets in the country. The Government has since concluded that this threshold is too high. According to a document available on the Income Tax Department's website: "There could be a situation [where] a company has 33.33 percent assets in three countries but it will not get taxed anywhere." The revised code accordingly provides for a 20 percent threshold. Where do I start? Perhaps with the arithmetical consequences of a 20 percent rule. What does "assets" mean? Who is to value them? Especially in the case of a private company. And in the case of a non-private company with interlocked international shareholdings spread across half a dozen financial centers, there never will be an answer. And at what level would be 20 percent (or for that matter 33 percent or 50 percent) be judged? But just to be fair, let's take it at face value, and suppose that these two corporations, Japanese and American, each with 20 percent of their assets in India, conduct a sale between themselves of a Cayman Islands subsidiary which has a proportion of its business activities in India (forming part of the 20 percent, by all means, but amounting to much less than 20 percent). Can you see what a minefield it would be? And if the companies have a majority of their assets in the USA and Japan respectively, how will the respective taxing rights of these various countries be adjudged? The original wording, difficult enough already, at least clung to the principle that a company should be taxed where it was mostly based. The whole thing is just puerile.
    Source: www.tax-news.com/news/India_Unveils_Latest_Direct_Tax_Code_Proposals____64258.html


  • Apr 03, 2014   India: vacillates

    I could go on, but you would probably rather I didn't. So to close, let's try to understand the trading rights and wrongs of the Great Indian Bicyle Story. Well, actually, I can't. There are a lot of figures provided by ASSOCHAM in that story, and none of them are supported by believable statistics. It comes across as a compilation of protectionist statements by a domestic lobbying pressure group, and is certainly no basis on which to reach any conclusions. India doesn't have any effective equivalent to the USITC, and most of the time its behaviour in the trading sphere appears incoherent, driven by this or that internal government faction in a way that is indecipherable to outside observers; and all the more so at present as politicians are focused on the upcoming election, which is quite likely to herald a major power shift with an unpredictable impact on international trading policies. So for those whose interests are affected by trading rules, it's down to lobbying the Government as best you can. Maybe then I shouldn't complain so much about the countries which do have official pro- or anti-trade organizations. At least there you know who to shoot at!
    Source: www.tax-news.com/news/Indian_Bike_Makers_Seek_Backing_Amid_Chinese_Dumping____64114.html


  • Mar 06, 2014   India: loves its taxpayers

    I love it that they have a Central Excise Day in India. Is it the equivalent of a corporate sports day, aimed at building departmental morale? Are there prizes for people who collected the most tax? Senior ministers took the opportunity to harangue the assembled bureaucrats about the need to be more friendly towards taxpayers, and to create pride in the taxpayer's breast at having contributed to the country's welfare. No comment.
    Source: www.tax-news.com/news/Indian_FinMin_Wants_Tax_Officials_To_Be_More_Friendly____63866.html


  • Feb 13, 2014   India: in stasis

    India's Government appears to have given up any hope of passing significant legislation through a divided Parliament before general elections take place in April this year; given that the outcome of those elections is extremely unclear, and that post-election maneuvring seems likely to be more complex than usual, it will probably be late summer at the earliest before a new Government is in place, with a Lok Sabha that might be more or less obedient to its will. Given the number of important dossiers that are pending, the GST and the Direct Tax Code among them, this can only be said to be highly injurious for the country's economic future. Among the consequences are that there will be no changes to the damaging retrospective tax legislation that was passed in 2012, and which is being abused – no lesser word will suffice – by the tax department. The Courts are going to be busy dealing with a series of very unhappy MNCs!
    Source: indianexpress.com/article/business/business-others/fm-hints-at-tinkering-with-tax-rates-to-boost-economy/


  • Feb 06, 2014   India: not always in the wrong

    Another faint cheer, or faded bouquet, as you prefer, for India, whose very incoherence sometimes delivers unexpectedly sensible results for businesses, and on this occasion for arch-enemy-of-the-people Vodafone, with a court decision to stay a contested tax demand. I won't even try to list or explain the panoply of business/government spats currently in play in India, which would take two weeks' worth of this column; but the keyword, and the wrong word here is "retrospection." If you are an international business in India, it doesn't seem to matter whether you have made a tax declaration, had it accepted, and paid the tax; the tax department is at liberty to come along and tear everything up as far back as it chooses, and indeed is doing so with great abandon. For help, businesses can only look to the courts, which by and large are staffed by well-educated, dispassionate officials (often trained in London, indeed). But the courts are at the mercy of the government: all they can do is to apply the law as it stands. And how wobbly that is – there is no coherent steer from the government, and the tax department seems to be making the law up as it goes along. Hilariously, the Finance Minister, who is admittedly less incompetent than the previous one, said last week that India "offers a stable and non-adversarial tax regime besides a fair and just dispute redressal mechanism." In your dreams, my friend!
    Source: www.tax-news.com/news/Indian_Court_Rules_On_Vodafone_Transfer_Pricing_Allegations____63559.html


  • Dec 12, 2013   India: v the world

    Continuing a round-up of the usual suspects, India may have behaved beautifully in Bali, but back at home it was up to its normal practice of tormenting mncs, demanding the equivalent of USD800m from IBM on the grounds that it understated 2009 income. IBM will fight, of course, and it joins a long list of major corporations aggrieved by India's predatory behavior, including Vodafone, Shell and Nokia. One theory is that the Government realizes that it is going to overshoot its deficit predictions this year, and can't resist picking at fat corporate wallets. So it just told the tax department to go for it on the basis that most companies will roll over and pay up, rather than become embroiled in endless proceedings like Vodafone, which after three years may, or may not, be approaching meaningful talks with the Government.
    Source: www.tax-news.com/news/India_Holds_Tax_Talks_With_Vodafone____62907.html


  • Sep 26, 2013   India: all at sea

    India continues to talk the talk; but the moment it tries to walk the walk it falls over, goes round in circles or takes a step backwards. In response to investor concerns after attempts to impose retrospective taxation on Vodaphone, Shell, Nokia et al, the Government has created a Tax Administration Reform Commission, which is to cogitate for 18 months before recommending changes to bring the country's tax system into line with international best practice. 18 minutes would be enough for most rational people to tell the Government what it is doing wrong. While the Commission was being set up, a previous panel, which was formed after the World Bank ranked India 132nd among 183 countries on ease of doing business, produced its report entitled "Reforming the Regulatory Environment for doing Business in India," urging the Government to withdraw the retrospective wording included in this year's Finance Act, which it says has damaged the investment climate in the country. So that's the talk; what about the walk? Well, this week in a protectionist move the Government increased import taxes on gold jewelry from 10 to 15 percent, and in case rich Indians want to spend the money on buying superyachts or LearJets instead, it slapped a wealth declaration onto income tax forms for anyone earning more than the equivalent of USD39,000, which would be about enough to have a gold tap in your master cabin. As with the Italian "redditometro," the hope is that the tax authority will be able to identify people who are under-declaring their assets on wealth tax forms, which are separate from income tax forms. But who is going to commit that kind of fiscal suicide? More likely there will be a sudden jump in the number of people earning USD38,999, and, also as happened in Italy, a sudden exodus of LearJets and yachts to Dubai. No word on the retrospective taxation, of course. The problem is that Government is not joined up: evidently there are senior people who know what needs to be done; but the news hasn't filtered through to the finance ministry or the tax department.
    Source: www.lowtax.net/asp/story/front/India_Increases_Import_Tax_On_Gold_Jewelry____62099.html


  • Aug 22, 2013   India: v trade

    We carried a largely negative feature article on India in last week's issue, from the perspective of foreign investment, of course, and this week has seen no improvement. Increasing import duties on precious metals is hardly of importance to cell-phone manufacturers (although electrical contacts often employ gold?) but is an example of a generally illiberal attitude towards trade. The way to reduce a current account deficit is to export more, not restrict imports, and exporting is what foreign investors often do, especially if they are in SEZs. India created a tax-privileged network of SEZs, which indeed started to export on a large scale, but then, incomprehensibly, imposed Minimum Alternative Tax on them. The aviation sector is also replete with evidence of India's incoherent attitude towards FDI. This week saw the Government take further action against Kingfisher Airlines, the most advanced basket case of the country's terminally sick airline industry. The country is expected to become the world's third-largest domestic air travel market in the next ten years, yet predictably the Government seems to have done everything it can to restrict foreign investment in its airline sector. Two years ago, with losses soaring at domestic carriers, the Government bowed to the inevitable and started to plan to allow minority stakes in domestic airlines. Why minority stakes? Well, of course, to protect the interests of domestic investors. Finally this month the first of a series of possible deals has taken place between Etihad Airways (UAE) and domestic carrier Jet Airways, with the sale of a 24 percent stake; but most large international airlines are wary of deals with Indian-owned operators, and the prevailing sentiment is to compete in the Indian market through expansion of existing foreign-owned operators, which is exactly what India should not want.
    Source: www.lowtax.net/asp/story/front/India_Hikes_Duties_On_Precious_Metals____61717.html


  • Aug 15, 2013   India: doesn't understand

    The Vodaphone affair drags on. The company evidently doesn't believe it will get a fair hearing from the Indian Government, and who can blame it after India simply changed the rules when Vodaphone had won fair and square in the courts. It's difficult to understand the Government's motivation: the Vodaphone case is worth a fair slab of change in itself (USD2.2bn), but surely the Government isn't being driven simply by cupidity? Recent news about tax collections seemed to be mildly positive, although it won't have much of an impact on the budget deficit, which is running at about 5 percent and doesn't seem likely to fall in the near future. Debt has shot up over recent years – it is not high in relation to GDP, but the maturity profile is worrying. Anyway, that is beside the point: with elections imminent, the current, ineffectual government is not going to do anything about the country's poor economic situation. Why then continue to persecute foreign investors? At least the Government is consistent in that sport, as is shown by its long-running dispute with Mauritius over their tax treaty, although the underlying motive in that case was to try to stop "round-tripping" by Indian investors. The result, however, is the same as with the Vodaphone case (and other foreign investor tax spats) – to deter foreign investment. Heaven knows there are enough barriers – bureaucratic, fiscal and unmentionable – to foreign investment already, without adding uncertainty to the mix. Yet the Government persists. Perhaps, in the rarefied atmosphere of the governing circles of the world's largest democracy, foreign investment simply doesn't signify.
    Source: www.lowtax.net/asp/story/front/Vodafone_Seeking_Neutral_Arbitrator_In_Indian_Tax_Dispute____61655.html


  • Jul 18, 2013   India: short-sighted

    India has completely blown its chances of becoming an important commercial hub; of course, it is vast, and will always be important, but no one in their right mind would consider basing an international holding or facilities company there. And unlike China, India doesn't have a convenient "offshore" center to work through. That could have been Mauritius, but the Indian Government has pursued a small-minded, short-sighted vendetta against Mauritius, with what purpose it is impossible to imagine, other than an attempt to control some fairly venal but not particularly dreadful behaviour on the part of Indian stock exchange investors. Shooting the messenger is the kindest description possible. Instead of attacking Mauritius, the Indians would have been better advised to treat it as a long-term partner.
    Source: www.lowtax.net/asp/story/front/Mauritius_Awaiting_Indian_Response_To_DTA_Proposals____61346.html


  • Jun 20, 2013   India: talks on

    Moving westwards a bit on the map we come to the next basket-case, being India, where the Government is continuing (after more years than I can even remember) to talk uselessly about the proposed GST, but has stopped mentioning the equally venerable "new" Direct Tax Code. The Finance Minister has set up a competitiveness review: I'm not quite sure what to make of this - the Standing Committee (it won't stand at its meetings, you can be sure, although it would probably achieve more if it did) will meet "at least once every two months," which doesn't sound as if it is going to lead to rapid results. But even if it did, nothing would happen, partly because the Government is supine, and partly because nothing will now happen before next year's April election. And nothing will happen after that, because whatever may be the result, one gerontocracy will merely replace another. The President (a failed Finance Minister) is 77; the Prime Minister is 80; the leader of the opposition is 85, although it is true that he is being challenged by a 62-year-old. There are even older politicians than that, including a 94-year-old. The current government has achieved little during its time in office and politicians are widely perceived to be corrupt as well as ineffective. Ernst & Young made recommendations to the Government for changes to the tax system last week, but I don't suppose anyone is listening.
    Source: www.lowtax.net/asp/story/front/Indian_Financial_Sector_Under_Competitiveness_Review____61024.html


  • Apr 25, 2013   India: always hopeful

    I don't know whether to laugh or cry at the news that India's Finance Minister is urging the great and good of the Indian tax establishment to improve relationships with taxpayers. He is correct, of course, but it will take more than words to put right what is wrong with the CBDT. "Not fit for purpose" would be a fair summing-up of the incoherent, directionless organization, although if you want to bend over backwards to be kind, you could say that it is more the victim of the politicians than the agent of the chaos that is enveloping the fiscal landscape. The latest act in what respected newspaper the Economic Times calls a "soap opera" is what looks to be the final abandonment of the Direct Tax Code as an instrument of major tax reform. After having been published, revised and postponed more times than I can remember, it now seems as if it is going to be used as a grand gesture to offer inducements to voters ahead of an expected early election. Although some elements of the Code as originally conceived have been included in recent budgets, including the GAAR, the planned reorganization of corporate tax rates may have been abandoned for the duration. And as for the Goods and Services Tax - don't even ask!
    Source: www.lowtax.net/asp/story/front/India_Aims_For_Better_TaxpayerAuthority_Relationship____60465.html


  • Mar 07, 2013   India: disappoints

    Much was hoped for from the new Indian Finance Minister, who replaced his inept predecessor (booted upstairs to be President) half way through the fiscal year, but much has not been delivered. There are some "temporary" surcharges on corporate tax, some tinkering with transaction taxes, and a resounding nothing on the dossiers that really matter, the Direct Tax Code and the Goods and Services Tax. They have both grown whiskers while successive ministers have failed to force them through against resistance from backsliders and entrenched regional interests. I have lost count of how many times each of them has been announced and then put off. Now the Minister wants to re-draft the DTC all over again (the third time) and is muttering vaguely about new laws being needed for the GST. Worst of all, nothing has been done to reassure foreign investors after the various public relations disasters of the Vodaphone affair, the retrospective change to the Income Tax Act and the introduction and withdrawal of the GAAR. The country seems incapable of creating a coherent framework for FDI under this administration. Time for a change.
    Source: http://www.lowtax.net/asp/story/front/Indian_2013_Budget_Delivers_Tax_Changes____59968.html


  • Feb 14, 2013   India: in cloud-cuckoo land

    Enough silliness! Let's take aim at India, which had another dreadful week on the international investment stage, with the tax department dreaming up several new schemes to purloin money from rich international companies: a new case against Vodaphone, a similar claim against Nokia, and their latest wheeze, a US3bn hit on Shell, dating from 2009. Why don't they just send out bills to every foreign investor they've had since 1962, when the Income Tax Act was passed? Perhaps that's what they're doing. Most laughable of all is the decision to levy minimum alternative tax at 18.5% on the SEZs which were introduced in 2005, and which will completely negate their purpose. I just love the reason the Finance Ministry gives for it: "the SEZs have drained revenue, and the new MAT will make the corporate tax burden fairer." Give the man an economics doctorate. It makes the IRS seem like a paragon of reasonableness.
    Source: http://www.lowtax.net/asp/story/front/Shell_India_Denies_Transfer_Pricing_Abuse____59569.html


  • Jan 10, 2013   India: a bad end to a bad year

    Another place which is suffering from self-inflicted wounds is India. Its latest outing into bad reputationsville sees a minister clambering onto the "all citizens are criminals" platform, always a favorite posture for failing administrations. The government's late and inadequate response to the recent terrible attack in Delhi is symptomatic of this administration, which seems to know only how to fail. On the economic front, this year has seen failure to implement the new Tax Code, for the third year running, failure to implement the new GST regime, for the third year running, and the botched attempt to create a GAAR, alongside a retrospective attempt to get back at Vodaphone, which had won its case in the courts over withholding tax, by reaching back nearly 50 years to re-write its tax laws. The gerontocracy in Delhi reacted to generalized outrage among foreign investors by sacking the Finance Minister, so then the new one promptly tore up his predecessor's budget. That's right, when your ship is on the rocks, throw the pilot overboard! At least the place is a democracy, so I had better be careful before comparing it unfavorably to China, but in purely economic terms I know which one is getting it more right.
    Source: http://www.lowtax.net/asp/story/front/Indian_Minister_Stresses_Need_For_Filing_Compliance____59027.html


  • Nov 15, 2012   India: one step forward and two steps back

    Here is the week's most bizarre statement, and the funniest if it weren't so worrying to investors in India: "(The Court) rejected the argument that the end use of a product ought to be taken into consideration, since this has no bearing on sale price." This is a transfer pricing case, obviously. Thus, manure sold to a pharmaceutical company for its zirconium content should cost the same as manure sold to a farmer, and if your pharmaceutical subsidiary in Singapore pays you more for your manure than your farming subsidiary in Bangladesh then it is not an arm's length price. Which price, pray, is not arm's length? It's too silly. And the same silly tribunal said that the tax authority does not need to demonstrate a tax avoidance motive by an enterprise in order to implement transfer pricing provisions. Silly me, I thought that transfer pricing was about tax. The only saving grace in this case is that the business concerned is Indian rather than foreign, although of course its external subsidiaries are foreign, and Atul has been selling its manure at a higher price than the authorities think is justified. Excuse me: isn't that good for India? Since when was tax more important than trade? I give up on India.
    Source: It also rejected the argument that the end use of a product ought to be taken into consideration, since this has no bearing on sale price.


  • Nov 08, 2012   India: won't admit defeat

    Another fog has settled over India's attitude towards foreign investors in the wake of the Vodaphone case, and the cack-handed way and apparently vindictive way in which the country introduced retrospective legislation in its recent budget aimed at taxing overseas m&a transactions involving Indian companies. The only result was to cause general shock and horror, and a hiatus in FDI while investors re-examined their options. A new finance minister has attempted to repair the damage, but the Indians can't quite bring themselves to admit the mistake outright. It took an impending visit by Canadian ministers, with improvement of investment conditions high on the agenda to wring a sotto voce admission that the whole subject is being reviewed at a high level. That itself wins them an encomium, but they'll have to back off: everybody seems to know it but them, so they might as well come straight out and say it. Pride must come next after jealousy as the second most damaging human emotion.
    Source: http://www.lowtax.net/asp/story/front/Tax_Case_Prompts_Review_Of_Indias_Investment_Agreements____58143.html


  • Sep 27, 2012   India: tries to mobilize savings

    India's decision to give tax relief on 50% of the value of listed share purchases is brave, and let's hope that it is not sunk by bureaucratic obstacles. Many countries have tried such measures to increase saving and mobilize resources through stock markets. Perhaps most famously, the French Loi Monory in the 1970s allowed 100% of stock market investments to be deductible, but only up to FFr5,000, which was too little (say EUR500) and was anyway whittled away in the 1980s. The problem in India is that ordinary people quite rightly don't trust government, and with perhaps less reason don't trust the stock market, which they may feel is at the mercy of events that are beyond their ken, and can fall prey to the very governmental incoherence they fear. It's this disconnect between what people feel they can control or understand on the one hand and the great economic forces washing back and forth on the other which makes all such schemes eventually ineffective. Examples are the laudable attempts to create shareholder capitalism in the UK in the 1980s and voucher privatization in Russia in the 1990s. In both cases individuals sold at a profit as soon as they could, and the fat cats got fatter. What governments should do is to allow investment into small business to be tax deductible, but ironically they don't do it for reasons that are the exact converse: they understand (sometimes) only what goes on at the level of the State, while the behaviour of ordinary people is a closed book to them. Finance ministries in particular, which rule the tax universe, consider all citizens to be actually or potentially criminal, so that they would regard giving tax credits for entrepreneurial investment as roughly equivalent to burning banknotes in the street.
    Source: http://www.lowtax.net/asp/story/front/India_Approves_Investor_Tax_Relief_Scheme____57454.html


  • Sep 06, 2012   India: where they don't even realize they are lying

    More twaddle from the Indian Finance Minister about the 'imminent' introduction of the new GST. Even quite sensible, highly trained economists fall under the spell of Finance Ministry make-believe once they cross those august portals. It must be something they put in the tea; or maybe Ned Lutyens' portland stone gives off hallucinogenic vapours. Whatever: the rest of us know that the GST is still years away.
    Source: http://www.lowtax.net/asp/story/front/Indian_Finance_Ministry_Talks_GST_Introduction____57036.html


  • Aug 23, 2012   India: loves foreigners (to steal from)

    This seems to be 'knock India' day in Kittysville; but they deserve it. No doubt there are plenty of well-educated, internationalist, fair-minded business-people in India; but none of them seems to end up in government. The normal scenario is playing itself out with the new finance minister, who indeed may have been a well-educated, internationalist, fair-minded person until he took the poisoned chalice a month ago, and came face to face with his devious, merchantilist, self-serving colleagues, and is now rapidly being undermined. The problem with the Indian administration is that it is incoherent. On Monday, white is black, on Tuesday it's purple, and by Thursday it's back to being white again, thanks to the internecine wargames carried on by a series of uncontrolled warrior princes dressed up as ministers. This is about Vodaphone, in case you hadn't guessed. I bet they wish they'd put the money into Russia instead, or China, or Brazil. As for me, I did some business in India once: my number one manager said afterwards that she hoped never to have to do business with another Indian in the whole of her life. I lost a little bit of money, but more importantly, I lost belief in a whole country, and nothing has happened since to change my mind.
    Source: http://www.lowtax.net/asp/story/front/Vodafones_Indian_Tax_Dispute_Reignites____56809.html


  • Jul 26, 2012   India: looks for more ways to steal from multinationals

    You know what a GAAR is? It's an ugly name for an ugly thing. It means that when a country can't maintain a tax regime that is acceptable to its businesses, it gives itself powers to take (steal) money wherever it chooses. The very words themselves tell the story: it isn't a 'General Anti-Evasion Rule'; it's an Anti-Avoidance Rule'. There is nothing wrong with tax avoidance, if done within the law. So a rule that is against it is against natural justice. Possibly, just possibly, in a country where the rule of law is clearly and firmly established and the courts uphold the law regardless, a GAAR can be justified. The UK is going to have one, as a poor substitute (as an enforcement mechanism) for lower taxes. But India's proposed GAAR is a mere cover for incompetence and graft. We may call it a Robin Hood tax: let's take money from the rich and give it to the poor. Not that they will give it to the poor in India; they will give it to themselves. 'They', the rich governing classes, need to shrive themselves before they start flaying the international companies that employ their poor.
    Source: http://www.lowtax.net/asp/story/front/India_Sets_Up_Expert_Committee_On_GAAR____56389.html


  • Jun 15, 2012   India: 'read my lips' says Aviation Minister

    Let's hope that the Indian Aviation Ministry's promise to cut aviation taxes is not just a ploy to get attention from the parts of the government that do actually have the power to get things done, meaning the Finance Ministry and, er, well I am sure there must be some others if only I could think of them. There's no question that the Indian aviation sector has lagged behind China, and that there are plenty of taxes on aviation. But so there are in China, the USA and the EU, to pick some places where aviation is sprinting ahead, in volume terms, at least. The Finance Minister, looking at the 11% growth in passenger numbers that India has clocked up in recent years, may think his largesse might be better spent elsewhere. We'll see. What the Indians ought to do, but won't, is to hold an international fire-sale of their clapped-out airlines, alongside a bonfire of useless regulations.
    Source: http://www.lowtax.net/asp/story/front/Indian_Aviation_Taxes_To_Be_Slashed____55789.html


  • Jun 07, 2012   India: hates foreigners

    India, another face of the BRIC, has also had a bad week. One newspaper said kindly that at least India hasn't reversed the reforms it undertook ten years ago; but it's not good enough to live on past glories, and the mean-minded, grasping, litigious attitude the country is showing towards major foreign investors through its retrospective M&A legislation is little short of disastrous for India's future investment prospects. All the signs are that the weak, and ever weaker government has fallen into the clutches of merchantilist commercial interests, whose natural instincts are protectionist and xenophobic. It's a sad end to what appeared to be a genuine opening, five years ago.
    Source: http://www.lowtax.net/asp/story/front/India_To_Tax_More_Merger_Deals____55738.html


  • May 10, 2012   India: government is too incompetent to implement necessary tax reforms on time


    Source: http://www.lowtax.net/asp/story/front/India_To_Defer_GAAR_Implementation____55328.html



 

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