India vs China: who will get the money?

Indian taxes are over the top

International enterprises, like Tesla, Parimatch, Nokia, learned the hard way towards Indian market. Hardly any means to protect intellectual property, oppressive rates of taxation for multinationals, and legislation that seemingly exists to stand in your way. Indian market is so hostile that even the biggest players contemplate cutting their investment or heading for the door. However, India still can evolve into a $5 trillion economy as soon as 2027, if the country reconsiders its approach to handling foreign investors.

India’s market: what one should worry about?

As one of the most populated states of the world, India has the capacity to shove China to the side, enjoying substantial foreign cashflow. A number of top-shelf moguls of the business world anticipate India’s change of heart regarding the cold shoulder the country gives to international businesses – to no avail so far.

Surprisingly, India is still very unwelcoming to major companies that wish to conduct business on the subcontinent. Nokia, Parimatch, and Tesla can attest to this statement. The country imposes unbelievably oppressive tax rates on foreign investors for no sane reason. Don’t forget a string of tax bodies with oftentimes drastically different takes on what and who to tax. The problem is systemic, and there’s ample evidence it holds the country back. Extensive report by Paderborn University and the World Bank processed copious amounts of the Tax Complexity Index data: India’s tax code complexity is ranked 53/100, India’s tax system complexity is even worse – 58/100.

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According to the metrics, domestic businesses are taxed way less than those coming from overseas. India’s roadblocks are holding the country back, while 130+ states voluntarily adjust tax rates for internationals, so that things keep moving and everybody wins. India is not that much interested by the looks of it. Anywhere else in the world, companies with over 750m euros of revenue pay no less than 15% in taxes. The corporate tax for multinationals is 30% in India (against 23% across the world), says the fintech expert Sagar Narendrakumar Surana.

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Another subject is India’s tax administration system – something state authorities try to consolidate, but with no luck at this point. “India has a string of tax authorities on different levels. This means that oftentimes various tax bodies present contradictory requirements, resulting in legal disputes. However, the government can make this process way 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, the money will come promptly. Parimatch, the international company, is ready to invest big time once the market grows friendlier.

No India for Tesla

Abnormal tax rates make even the biggest players exit the Indian market. Tesla, electric car manufacturer, is hesitant to continue, since the authorities don’t make life easier for the multinational. India charges 60% tax on budget vehicles, and 100% on cars over 30K euros (3,000,000 in local currency). Business mogul or not, this kind of treatment is not something that makes a company want to stay.

Tax load is too heavy

Despite its potential, the country is extremely difficult in terms of keeping one’s business alive and thriving. Another reason why so many companies up and leave is the tax legislation as a whole. The policy changes may come out of nowhere, and too many operations simply cannot keep up – hence the legal repercussions, such as fines and lawsuits. “Recent years have witnessed companies either move from India to other developing countries or downsizing their operational scale. This trend has not ceased to disappear even after our honorable Prime Minister invited companies from abroad to come and invest more capital in India’s developing economy”, one of the blogs on India’s taxation clarifies.

One can easily look up some high-profile cases with major businesses under fire. Japanese and South Korean tycoons, along with Amazon and Foxconn, have been fined by the state for various reasons. Account falsification in India, tax evasion, or the alleged concealment of investment – everything but the kitchen sink. The list of moguls persecuted by the Indian taxmen goes on: IBM, Nokia, Walmart, Cairn Energy, Shell. While some try and get crushed, some have trouble with initial launch in the country to begin with. Like Parimatch, for example, which did not have at least a chance to test the Indian waters as of now. With all that on the horizon, the most reasonable move is – you guessed it – to try elsewhere. Like Wistron Group and Foxconn Group did not so long ago. No point to stay if the host ain’t happy to see you in the first place.

Cutting the tax load: courts step in

Once every other alley has been explored, all is left is the court. Sadly, according to The Economic Times, the odds are not in business’ favor. One prominent case of such obnoxious taxation is the raise of gaming tax – from 18% to 28%. Business owners don’t feel this change is within reason, let alone its blatantly negative message to the gaming industry as a whole. In order to stand their ground and defend their right to at least try and conduct business in India’s market, the E-gaming Federation files 27 pleas to appeal the decision in court. Still, the government remains unmoved, as the potential investors keep heading for the door.

Gambling sector is a good example of how ridiculous India’s demands are. Goods and services tax forced a number of e-gaming enterprises take matters to court. Dream 11, Games 24x7, Head Digital Works, Gameskraft are just some of the businesses that can’t take this Indian tax mayhem anymore. The case of Gameskraft, for instance, is very telling. The e-gaming company was notified it owes the state Rs. 21,000 crore (around $2 billion) – but the Karnataka High Court verdict quashed the GST intimation notice. Just when it seemed there’s light at the end of the tunnel, the Supreme Court of India suspended the enforcement of this decision. So close, but still not close enough.

India’s failed intellectual property protection

As if all the mentioned factors are not enough to deter foreign capital, India has something else on offer. Notorious for its lack of intellectual property protection whatsoever, the subcontinent is littered with counterfeits of all sorts. Every other business that tried to operate in India went through pretty much the same obstacle course. International company Parimatch, although not present on the country’s market, faced this problem nonetheless. Exploiting the likeness and resemblance of the bookmaker, industrious swindlers saturate the local market with counterfeits without a shadow of remorse. And this saddens Parimatch greatly, for the company does want to conduct business here, along with necessary tax payments to the state economy. Let us not forget that healthy competition keeps the industry growing, supplying all the interested parties with more opportunities. Indian state authorities are yet to understand this cornerstone rule of business.

Vishwas Bhagwat, computer network export and businessman, is convinced that it is exactly the country’s lack of means (and desire) to battle fakes and frauds what keeps multinationals from research and development investments. Mr. Bhagwat adds that wishy-washy tax policies don’t do much good either, along with ridiculously tangled-up regulations and unnecessarily complicated registration process. And, of course, the said blatant disregard for protection of intellectual property – the ultimate “no” for Western companies, part of a completely different business environment. In the end, says Mr. Bhagwat, it is India that pushes away foreign innovations and capital.

Foreign capital for grabs, Vietnam steps up

With that much of an unnecessary obstacle course for multinationals, India loses numerous new jobs for the locals, and tons of money from overseas, Taxguru publication believes. As the country deters foreign capital from China and United States, others do just the opposite. One such country way friendlier to international business is Vietnam, pulling increasingly more investors with India missing out. Eric Garcetti, the U.S. Ambassador to India had something to say on the matter: “We want the foreign direct investment from China to shift, but FDI is not flowing into India at the pace it should be. Instead, it’s going to countries like Vietnam. I would selfishly like to see more of that happening in India”.

India remains one of the most promising markets for both domestic and foreign enterprises. Its potential is yet to be explored, with countless opportunities for the state economy to boom. However, the government has to make necessary adjustments and create a business-friendly environment altogether. As soon as this market is willing to nourish businesses from all over the world, Parimatch is ready to inject the Indian economy.

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