Mark AdamsIndian taxes exceed the top
International companies such as Tesla, Parimatch, and Nokia, have learned the hard path of success in the Indian market. There are very few means to protect intellectual property, oppressive rates of taxation for multinational corporations, and legislation that seemingly exist to stand in your way. The Indian market is so unfriendly and hostile that even the biggest players are thinking about cutting their investments or even leaving the country. But if India country rethinks its approach to dealing with foreign investors, it still can develop into a $5 trillion economy by 2027.
India’s market: what to worry about?
As one of the most world’s populated states, India possesses the ability to push China to the side and enjoy substantial foreign cashflow. Some influential business people are anticipating India’s change of heart regarding the cold shoulder the country gives to international businesses. Yet, no changes have occurred yet.
Surprisingly, India is still not very welcoming to leading companies, namely Nokia, Parimatch, and Tesla, that want to do business on the subcontinent. The country imposes extremely oppressive tax rates on foreign investors for no reason of sanity. There are also some tax bodies with oftentimes significantly different ideas on what and who to tax. The problem is systemic, and there’s enough evidence that it holds the country back. According to the report by Paderborn University and the World Bank, India’s tax code complexity is ranked 53/100, India’s tax system complexity is even worse – 58/100.
A project for entrepreneurs and investors Vakil Search offers some relevant figures to better understand the problem.
According to the indicators, domestic companies are taxed much less than those coming from abroad. India’s obstacles are holding the country back. Meanwhile, more than 130 states voluntarily adjust tax rates for internationals, so that things keep moving and everyone wins. India is not that much interested in foreign investments. Anywhere else in the world, companies with over 750m euros of revenue pay no less than 15% in taxes. Fintech expert Sagar Narendrakumar Surana says that the corporate tax for multinationals is 30% in India (against 23% across the world).
Another problem concerns India’s tax administration system. State authorities are trying to improve it, but with no luck at this point. “India has a string of tax authorities on different levels. This often means that various tax bodies present contradictory requirements, resulting in legal disputes. However, the government can make this process easier by introducing electronic solutions, such as filling tax reports and paying taxes online”, suggests the expert Mr. Surana. If the country does make its tax system less hostile, more investment will come very soon. For example, the international company Parimatch is ready to invest on a large scale once the market grows more friendly.
No India for Tesla
Abnormal tax rates make even the biggest players leave the Indian market. Tesla, electric car manufacturer, is hesitant to continue, since the authorities don’t make life easier for the company. India charges 60% tax on budget vehicles, and 100% on cars over 30K euros (3,000,000 in local currency). Such attitude makes a company consider the issue of staying in the country with a hostile economic policy like this.
Tax load is too heavy
Despite its potential, it is really difficult to keep businesses alive and prosperous in India. Another reason many companies are quitting is tax law in general. Policy changes can happen unexpectedly, and have legal consequences, such as fines and lawsuits because too many operations cannot keep up. In recent years, many companies have moved from India to other developing countries or scaled back their operations. As one of the blogs on India’s taxation explains, the trend persisted even after the Prime Minister invited foreign companies to come and invest more capital in India’s developing economy.
One can easily examine several high-profile cases with major companies under fire. Japanese and South Korean tycoons, along with Amazon and Foxconn, have been fined by the state for various reasons. Falsification of accounts, tax evasion, or alleged concealment of investments in India – all but the kitchen sink. The list of moguls persecuted by Indian tax officials continues: IBM, Nokia, Walmart, Cairn Energy, Shell. Some will try and crush, but some will have problems with the first launch. For example, Parimatch hasn’t had the opportunity to test Indian waters yet. Since everything is on the horizon, the most reasonable move – you guessed it – is to try elsewhere. Like the Wistron group and the Foxconn group that did so long ago. If the host is not happy to see you in the first place, there is no point to stay.
Cutting the tax load: courts step in
Unfortunately, as the Economic Times writes, the odds are not favorable to the business. 1. One of the clearest examples of such disgusting taxation is the increase in the gambling tax from 18% to 28%. Business owners do not believe this change is reasonable, not to mention an outspoken negative infringement on the gaming industry as a whole. To defend its position and its right to at least do business in the Indian market, the Electronic Games Federation has filed 27 applications to appeal to the court. But the government is not upset at all as potential investors continue leaving the country.
The gambling sector is a good example of how meaningless India’s demands are. The tax on goods and services forced some companies involved in electronic games to file a lawsuit in court. Dream 11, Games 24×7, Head Digital Works, Gameskraft are just some of the companies that can no longer tolerate this Indian tax chaos. Gamescraft was notified that it owed the state 21,000 rupees (about $2 billion), but the Karnataka High Court’s verdict overturned the goods and services tax notice. Just when it seemed that there was a chance to improve the situation, the Supreme Court of India suspended the execution of this decision.
India’s failed intellectual property protection
There is something else in India, as if all the factors mentioned were not enough to deter foreign capital. The subcontinent, famous for its lack of intellectual property protection, is littered with all sorts of counterfeit goods. All other businesses that tried to work in India went through almost the same obstacle course. The international company Parimatch does not exist in the country’s market, but, nevertheless, faced with this problem. Taking advantage of the similarity of the bookmaker, hardworking scammers saturate the local market with counterfeit goods without a shadow of regret. And this makes Parimatch very sad, for the company does want to do business here, along with the payment of taxes necessary for the state economy. Let’s not forget that healthy competition will make the industry grow and provide more opportunities for all stakeholders. Indian state authorities have yet to understand the rules of this cornerstone of business.
Vishwas Bhagwat, an exporter of computer networks and businessman, said that what prevents multinationals from investing in research and development is the lack of funds (and desire) to combat counterfeiting and fraud. Bhagavat adds that the unreliable tax system, along with ridiculously confusing rules and unnecessarily complex registration processes, does not bring much benefit. And, of course, the aforementioned blatant disregard for intellectual property protection is the ultimate “no” for Western companies that are used to a completely different business environment. After all, Bhagwat says, it is India that repels foreign innovation and capital.
Foreign capital for grabs, Vietnam steps up
According to the Taxguru publication, because of such an unnecessary obstacle course for multinationals, India loses many new jobs for local residents. As the country deters foreign capital from China and United States, others do just the opposite. For example, Vietnam is much friendlier to international business. The country attracts more and more investors, but India has lost this opportunity. US Ambassador to India Eric Garcetti commented on the issue: “We want to move foreign direct investment from China, but FDI is not coming to India at the pace it should be. Instead, it goes to a country like Vietnam. I selfishly want this to happen more in India.”
India continues to be one of the most promising markets for both domestic and foreign companies. Its potential has not yet been explored, and there are countless opportunities for the state’s economy to thrive. But the government should make all necessary adjustments and create a business-friendly environment. As soon as this market wants to attract companies from around the world, Parimatch is ready to join the Indian economy.
