Companies deplore Indian “tax terrorism” and administrative formalities

At first glance, the expansion of operations in one of the fastest growth countries in the world should be obvious, but for the manufacturer of Timken India bearings, there may be easier places to do business.

Sanjay Koul, Managing Director, told investors last year that the Ohio -based parent company could rather look at other countries “where there is less tax terrorism” and “where they may have facilitated business”.

Since then, the company has been struck by an unexpected tax request of 250 million rupees ($ 2.9 million), which it disputes.

For Timken, there are still good reasons to be IndiaAnd Koul said that “India is a great place to find”. But when they asked him for new investments in the country, he said: “Obviously, we want to invest carefully so that we get the best blow for the field.”

The experience of a company that has been in India for about three decades, employs more than 1,200 employees and which has operations in several Indian states speaks of the challenge of the authorities while economic growth slows down.

Investors have long urged India to reduce administrative formalities, soften labor laws and simplify taxation and compliance, arguing that reform, in particular taxation, could stimulate investment and create jobs.

At a time when Prime Minister Narendra Modi courted world investors Apple And wants to establish India as a global manufacturing center to compete with China, it has become a question of urgent importance.

Modi Economic Advisor, V Annantha Nageswaran, urged central governments and states to “move away” and start to “back up regulations considerably” or to face a “high risk of stagnation of economic growth”.

With growth forecasts at 6.5% for the current financial year, compared to 9.2% in 2023-24, the Minister of Finance Nirmala Sitharaman in February used this year’s budget for Announce an examination of commercial rulesCertifications, licenses and compliant as well as the creation of an investment conviviality index.

Just before her appointment as governor From the Central Bank of India, the former secretary of revenue from the revenue of Sanjay Malhotra recipes warned in December the government tax agents which they should “not kill the golden goose” with their requests.

Already, a lot of blame falls on investments in administrative formalities and an irregular application of taxation. NETTS foreign investment flows fell to around $ 1.2 billion in April to December, compared to $ 7.8 billion in the same period of the previous year, according to the February Bank’s economic bulletin.

Under Modi, India has attenuated the company’s registrations, consolidated labor codes and digitized tax processes, all in order to facilitate the life of companies.

“No one will consider India as an easy country to do business, there is still a lot of capricitus in the implementation of rules and regulations,” said Nirmalya Kumar, professor at Singapore Management University. It remained difficult to set up and leave a business and shoot, said the former manager of Tata Sons.

Several regulations date back to the first days of the independence of Great Britain, said Ajay Shriram, president of the ease of making a commercial working group at the Confederation of Indian industry. Although rarely applied, he said that the 1948 factories law can lead to prison terms for business owners for minor violations – including laundering toilets.

A national tax reform of national products and services in 2017 has simplified taxation, but many companies are due to the fault of the tax regime of India and are aspired in the legal disputes of the marathon. Taxes are taken from three levels – central, state and local – and can be interpreted in a vague and contradictory manner.

In February, in front of the High Court of Mumbai, a lawyer for the Indian Branch of Volkswagen argued that a tax request of $ 1.4 billion imposed on the company last year for an alternated erroneous classification of the import of automotive parts was a “question of life and death” for a car manufacturer who employs 4,500 people.

In August, the giant of Indian technology services Infosys was $ 4 billion Retrospective tax notice. The South Korean Kia automobile also fights on tax requests.

In February, Sitharaman presented a bill to Parliament, proposing to reduce half of the 500,000 words from the 1961 income tax manual in order to reduce disputes. The disputed tax requests totaled RS13.4TN in March 2024, according to the Ministry of Finance.

Alcoholic drinking companies, including Diageo, Pernod Ricard and Heineken Indian companies, were targeted in raids and involved in tax and licenses in the midst of a constantly evolving regulatory patchwork, in a country where alcohol is considered taboo by numerous milk cows by states that retain control over the taxation of alcohols.

While recent government announcements intended to remove the bottlenecks “will help,” said Kumar, taxation “is complicated enough for people, the legal system always takes a long time for disputes to be resolved”.

A loose bureaucracy, characterized by overlapping offices and opaque approvals, makes change difficult.

“A large part is like Yes Minister“Said a senior manager of a large business conglomerate based in Mumbai, referring to the classic British satirical spectacle where civil servants have thwarted reform attempts while senior officials” end up being frustrated because Hydra has grown too much “.

In this context, many companies consider the centralized China system as more attractive.

“If you create a factory in China, you are just up there, signed, sealed and delivered in advance with a lot of field, with all the data connections, the road access given and the only work is to create the factory,” said a large executive of a large Indian company.

In India, “they just left the snakes, rather than someone who will take matters into their own hands”.