It is fairly well established that significant tax and investment reforms can have major effects on business Investments. With the most open economy along with significant Tax reforms, the Indian Government has certainly put India ahead of all countries to attract business and thereby creating growth opportunities for global businesses and growth of the country. While the tax reforms were being carried on, Government in the meantime improved power and Infrastructure situation. Tax is the most important factor in making any country to become more competitive, globally. Opening up to the outside world for promoting development without any significant tax and investment reforms may render the whole exercise useless. In present times, Tax competitive is more about stable, clear and seamless tax policies instead of the only reduction in tax rates.
In this Globalized environment, it is important for Governments to be innovative, to understand the business’s needs and to serve the right investment atmosphere with the right policies. Similarly, for companies, selection of the right country for their manufacturing/ production is essential as they need to justify their capital expansion costs, profitability and decisions.
India is scoring on all fronts and with a renewed focus on tax reforms, India has been able to create an impression about its prudent Tax and Investment reforms. Following decisions establish a strong will of the country to ensure the business-friendly approach and Tax competitiveness:
- Reduction in the corporate tax rate for MSMEs to 25% from 30% to make them competitive.
- The profit-linked deduction announced to the start-ups for 3 years out of 7 years.
- Tax Holidays to SEZ units for 15 years if these become operational before 31st March 2021.
- Focus on signing Advance-pricing Agreements to avoid Transfer pricing Disputes.
- Exchange of information electronically in Tax scrutinies to avoid harassment.
- Revisions in Tax treaties with many countries.
- Most advanced Online tax filing system in the world
- Implementation of Goods and Service Tax (GST) in place of many taxes like VAT, service tax, Excise, Entry tax, Octroi Tax thus bringing simplification.
- Focus on Non Cash transactions thereby bringing more people under tax system and improve GDP.
- Abolition of Foreign Investment Promotion board. Instead, Standard-operating procedures for processing applications has been framed to clear foreign investment in a fixed time.
- Focus on black Money and curbing cash transactions to enhance GDP.
- Exports incentives like duty drawback, duty exemption/remission schemes, focus products & market schemes.
- Repatriation of funds/investments/profits is very easy.
- India has already rolled out Anti-tax avoidance regulations i.e. Place of Effective Management (POEM) from the assessment year 2017-18 and the General Anti-Avoidance Rules (GAAR) from the assessment year 2018-19 to bring more clarity on tax laws.
For more than past 2 decades, protectionist tax policies gave undue tax advantage to US MNCs making them bigger than many countries. As per Tax Regulations in the US, companies are allowed to hold foreign profits outside the US without paying U.S. corporate tax on these profits. The tax is applicable only when profits are repatriated to the United States.US companies in turn set up businesses in Tax-free jurisdictions thereby avoiding paying taxes anywhere. This has not only harmed the US government but also other countries and companies in other countries. The sheer quantum of profits, which as per estimates is more than $ 3 trillion, is bigger than the economics of many countries together.
China exploited this US tax system to their advantage by offering reduced tax rate (NIL tax inside SEZs) to these MNCs in lieu of setting manufacturing base there. China further offers reduced tax rate of 15% to High Technologies enterprise & encouraged businesses along with 10% tax on small-scale enterprise.
India’s tax reforms, competitive policies along with major focus on skill development of countrymen offer significant edge in terms of cost competitiveness and future growth.