Ease of Doing Business in India - the CII Report
CII in association with KPMG released a report on "Ease of Doing Business in India" on 19 May, 2014 (yesterday) at Chennai.
The report identifies key areas for reform, which will enable doing business in India, including setting up of business, land acquisition, taxation and contract enforcement.
It is based on a survey conducted amongst Indian industry followed with extensive primary and secondary research to assess the prevailing business regulatory environment in the country. Key issues highlighted include lack of an effective land acquisition process, unfavorable taxation regime, high cost of starting a business, complicated and time consuming contract enforcement process.
Highlights on Taxation:
Companies believe that the Indian direct tax regime is not conducive to fostering growth; reduction in corporate taxes could provide an impetus to the growth of business
India fares poorly on the 'Doing Business 2014' paying taxes indicators - total tax rate, the time to comply and the number of payments. Of the 189 countries studied, India ranks 158 in terms of overall ease in tax payment.
Ninety percent respondents believe that the tax authorities are not proactive in promoting investments. Sixty percent respondents feel that the neutralisation of the tax decision by the Supreme Court through a retrospective amendment is likely to have damaging effect on investment sentiments.
Companies face issues while dealing with tax authorities, settling tax disputes, availing tax incentives and obtaining timely service tax refund:
++ Around 23 of respondents find time taken for clearance and tax disputes resolution to be significant.
++ More than half the respondents face delays in obtaining service tax refund.
++ There is a need to simplify complex tax processes and reduce the time taken for availing incentives.
Taxation - Recommendations
Taxation in India needs structural, operational and administrative reforms; the burden of tax compliance should be reduced besides enabling e-filing of all taxes:
++ Enable e-filing of all taxes with uninterrupted access to online services especially in rural areas
++ Time-bound subsidies and tax exemptions should be given to the units located in industrial areas, food parks and agro-export zones.
++ The Goods and Services Tax (GST) proposes to subsume all indirect taxes levied in the country but is yet to be implemented. It could help address the shortcomings in the existing indirect tax system like tax cascading complexity and poor technological infrastructure along with high cost of compliance
++ Refund of VAT should occur automatically and in a time-bound manner
++ Introduce a feedback mechanism to obtain input from taxpayers on the tax regime.
Structural reforms - Reduce the number of levies and simplify their nature
Structural reform calls for:
- Clarity in policy and precision in drafting to help decrease the number of disputes
- Clarity and precision in policy by aligning it to macroeconomic objectives
- Stability and predictability to avoid frequent amendments
- Emphasis on restricting practice of retrospective amendments.
Direct Tax
- Moderation in individual and corporate tax rates to spur domestic demand and investment
- Elimination of capital gains tax to boost domestic and foreign investment
- Clarify the non-availability of MAT for foreign companies - need for certainty post-AAR rulings
Indirect Tax
- GST needs to be implemented urgently to meet the goals of consolidation and simplification while generating more revenues
- Move away from the revenue generation aspects of customs - focus on anti-dumping and border security
- Facilitate consolidation of multiple taxes at the state and local levels - eliminate 'nuisance' levies
- Elimination of 'dual levies' - e.g. software and IPRs
Operational Reforms - Focus on getting the tax base right and ushering in certainty and stability
Direct Tax
++ Indirect Transfers
++ Implement the Shome Committee recommendations; clarifications and legislative amendments are necessary
++ Clarification on items such as threshold, group reorganisations, stock market taxation
++ Need to eliminate retrospectivity
++ Non-applicability of penalty and interest if applied retrospectively
Indirect Tax
++ Ease restriction on the availability of Cenvat credits
++ Revisit the Fiat India issue - restore the primacy of actual transaction prices
++ Equal incentives for the services sector - to bring them at par with manufacturing incentives
++ Guidelines on refund processes and timelines
++ Greater consistency and accountability in tax administration
Administrative Reforms
++ There is a need for consistency in approach - uniform interpretation and application of the law and judicial pronouncements
++ Increase stability in reporting - Avoid frequent changes in the return formatother forms
++ Development of a strong IT backbone
++ Provide certainty and clarity on clauses. For example, the tax holiday for the IT sector faces issues while implementation due to ambiguity
++ The function of tax administration should be distinct from that of an SBU, any ambiguity could lead to undue arbitrary taxation claims
++ The administration, for taxes, should adopt a concentrated, rather than fragmented approach
Maybe a good guide for the new Government.