Over the years, India has moved up the ranks in various ease of doing business surveys. However, these surveys seldom provide a clear picture of what more needs to be done. Under the Modi Government, the last decade has seen landmark policy reforms such as Insolvency and Bankruptcy Code and Goods and Services Tax. The impact of these two legislations has been transformational. These legislations are not perfect and have been continuously amended and evolved. With an ambitious target of moving to a $5 trillion economy, India needs to continuously upgrade and reinvent itself, to remain competitive. To this end, there are certain aspects which need immediate attention.

Production Linked Incentives (“PLI”) is a flagship program which brings a paradigm shift away from tax holidays to investment linked fiscal incentives. PLIs have been the big-bang policy “carrot” to charm global manufacturers to set up their mega-factories in India. While the Government has consistently added more sectors to the list (which now stands at 14), there is a need to imagine the PLI scheme in a more holistic manner wherein key tax and regulatory issues are addressed as part of these schemes.

Taxation continues to be a high-risk area for most MNCs investing in India. Some of it can be attributed to the biases that the global investor community carries owing to the scars of the past like the infamous Vodafone case. Even though there has been significant work done to bring down incidence of such disputes (starting from the Government vowing not to carry of retrospective tax amendments), India still needs to work hard to improve its image as a stable and predictable tax regime. Swift adoption of technology for various tax compliances has enabled faster tax audits and refunds but more needs to be done as regards dispute avoidance and resolution. Just as the country is experiencing considerable investment in the physical and digital infrastructure, significant investment is needed to upgrade our legal infrastructure.

Dispute avoidance by creating platforms to seek private rulings in a fast and efficient manner (without running the risk of prolonged litigation) is the need of the hour. This ask cuts across various legislations and is not unique to tax. There never been a doubt on the capabilities and independence of the Indian judiciary. Concerns have always been in relation to the time it takes to get legal disputes resolved in India. Justice delayed is justice denied. Most of the current avenues to seek tax certainty through advance rulings have proven to be ineffective. Thus, a complete overhaul is needed, wherein more accountability is placed on the pace and quality of such rulings.

Another way to imagine dispute avoidance is by creating a Mediation Counsel with senior officials and industry representatives. The government does set up inter-ministerial “war-rooms” to address the concerns of investors for projects of strategic importance to the country. A Mediation Counsel can be a permanent inter-ministerial committee with a mandate to address high-stake industry wide issues. Such Counsel should have the ability to pull in experts from industry and academia to find business friendly solutions to issues which otherwise have the potential to result in long-drawn disputes. This platform should also provide an opportunity to corporates to explore various transaction structures and understand potential showstoppers, if any, in advance from a tax and regulatory perspective. Providing certainty on investment structures in advance can immensely enhance the investor confidence in India and their perception of ease of doing business in our country.

To conclude, government needs to work as an enabler to global business community rather than as a regulator. Clarity in interpretation of laws through efficient judicial platforms and access to multi-departmental government representatives to work together a business partners will go a long way for India to enhance its attractiveness for foreign investors.

This article was originally published in Business Today on 30 January 2023 Written by: Sanjiv Malhotra, Senior Advisor. Click here for original article

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