As India’s economy enters the second year of a cyclical downturn, the Exchequer is having a hard time keeping up with the Government’s revenue collection targets. The result is plenty of acrimonious disputes between the taxman and corporates. Chris Kay’s article captures the litigious environment:
“Indian tax authorities have levied a series of huge tax bills against multinationals, undercutting Prime Minister Narendra Modi’s push to bolster the ease of doing business in the country and promote India as a manufacturing alternative to China.
In recent months, Volkswagen, Kia and Samsung were issued or have legally contested notices totalling more than $2bn, in an outstanding instance of what critics say are predatory practices by Indian tax authorities against foreign companies operating in the country that threaten to undermine business confidence.
The salvo also comes as Modi’s government has sought to improve the business environment in India, with moves such as cutting corporate tax rates and streamlining the country’s complex and often unpredictable revenue collection system.
But India’s unaccountable revenue officials remain steeped in a “socialist-era” culture where “businessmen were seen as crooks”, said Mohandas Pai, chair of Bengaluru-based venture fund Aarin Capital.
“We have a broken assessment system where tax officers can do what they want without proper reviews,” Pai added, noting that a proposed income tax bill would allow collectors to access emails, social media and cloud storage platforms without prior judicial approval. “There’s no check and balance.”
A senior tax lawyer who requested anonymity added: “The tax department is a law unto itself.””
Inspite of repeated assurances by the Finance Minister that red tape will be reduced and harassment from the tax department will abate, precious little seems to be changing on the ground. Part of the reason seems to be that the changes in the way the global supply chain works allows companies to (legitimately they believe) to do business in such a way that the effective tax burden is lower in India. Given that the Government has aggressive revenue collection targets, this altered global operating environment puts Indian tax officials under a lot of pressure: “Samsung earlier this year was also hit with about $600mn in backdated levies and fines on individual executives over imported telecoms equipment. The South Korean conglomerate was likely to contest the claims, according to a person familiar with the matter who said the “confusion” was based on “a classification issue”.
“Tech is changing rapidly and globally, which leads to changes in nomenclature, changes in interpretation, but the customs commissioner in India hasn’t kept the technological changes in mind,” the person added….
Kia said it was also fighting tax bills, adding that it was “committed to uphold all regulatory requirements”.
Maruti Suzuki…said last month it would object to an additional $346mn bill for the financial year ending in March 2022….Tax disputes, some more than a decade old, rose 27 per cent to Rs15.4tn ($180bn) in the two years to March 2024, according to finance ministry data.”
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