Rebuild the lost confidence: A move against adversarial taxation

WASHINGTON, DC: In 2019, India was one of the top 10 global investment destinations for investors across sectors. This favourable condition can be attributed to India’s improvement in the World Bank Ease of Doing Business metrics driven by a stable political regime focused on regulatory reforms keen to be seen as emerging economic hub coinciding with the American pivot towards the Indopacific.

Despite these advancements, India is losing out to competing countries such as Vietnam, China, Indonesia among others in the region. It has been found that out of the 56 companies that left China between 2018 and 2019, only 3 moved to India, while a whopping 26 moved to Vietnam. This can be attributed to reasons such as the lengthy and tricky tax procedures and a litany of regulatory concerns. A study mentions that in India, it takes over 250-254 hours annually to complete tax procedures for businesses. Another bottleneck faced by the Indian economy has been the lack of uniform policies amongst Indian states. Similarly, delays in dispute resolution which take up to 1445 days to be resolved as opposed to only 164 days to resolve a dispute in Singapore, have also dampened India’s attractiveness for MNCS. A major drawback is also its rigid regulatory framework, arbitrary enactment of taxation laws and unreasonable and sometimes retroactively enforced tax demands which have failed to create an encouraging environment for businesses. India’s low per capita income, lower than expected sales have further worsened India’s reputation as a business destination.

In a recently conducted USISPF surveyof CEOS of MNCS to gauge investment sentiments of businesses those that did not have a regional headquarter in India, unanimously listed good governance, transparency, predictable tax policy framework, ease of doing business, infrastructure and cost advantage as reasons for choosing alternate countries for their investments. Further, they also stated that India would be a preferred destination for setting up a regional headquarter if it carried out business friendly regulatory reforms.

This throws light on the current state of investment sentiments in the Indian economy and also stresses upon the gaps that the Narendra Modi-led government must fill in order to emerge as the top business destination, globally.

While a simpler tax regime has been a core issue that the current Govermnment has sought to implement, concerns over retrospective taxation need to be put to rest to provide certainty. There is a need for change both in attitude and mindset towards investors and assessees. It is imperative for India to have a nonadversarial tax administration which is both investor and assessee friendly. Along with two concerns; the decision-making has also been slow and the lack of policy has been expressed in all forums.

Investors’ confidence has been shaken in the past because of a fluctuating tax policy. Recent verdicts in favour of multinationals like Vodafone and Cairn Energy are cases in point. Although the current government has attempted to convey to investors across the the world that theirs is a government where the decisions will be fair, transparent and within the four corners of the law, the fact that the government is going to challenge the International Arbitration verdict in favour of Vodafone displays a dichotomy that is difficult to explain. This uncertainty regarding retrospective taxation is an issue on the minds of investors and there is a real danger it will undermine the message that the government is seeking to send out that India is open for investment.

Dr Mukesh Aghi is CEO & President of USISPF.