Jumps 53 notches in paying taxes, 33 in resolving insolvency; placed 4th in protecting minority shareholders; GST, targeted reforms to help further: FM.
India leapfrogged 30 notches, the most by any country, to secure the 100th rank in the World Bank’s index on the ease of doing business — it showed improvement in six of the 10 parameters for 2018, having witnessed the steepest jump in tax payment (even as the goods and services tax regime was not factored in as it was rolled out after the survey deadline) and insolvency resolution (See the chart). For the Modi government facing a volley of criticism from Opposition parties for the economic growth slowdown, the short-term damaging impact of note ban and the patchy implementation of GST, the staggering improvement in the country’s rank against the crucial yardstick that global investors take seriously has come in extremely handy. The report, which found New Zealand, Singapore and Denmark as the easiest places to do business in, ranked China at 78th. Finance minister Arun Jaitley said since many reforms are underway in some critical parameters where India’s rank has been far from satisfactory historically — such as enforcing contracts, construction permits, registering property, starting a business and trading across borders — there is a “huge scope” for the country to break into the group of top 50 nations in the coming years, as targeted by Prime Minister Narendra Modi. He expressed confidence that the introduction of the GST from July would drive up India’s rank further in future, despite initial disruptions. Commerce and industry minister Suresh Prabhu said he was “elated’’ over India’s performance.
In resolving insolvency, India’s rank improved to 103rd from 136th last year, despite the fact that the first such resolution was announced by the adjudicating authority only in August— after the survey deadline was over. It’s because the optimism among stakeholders about the new insolvency law and the nascent eco-system was so unusually high that they responded positively to the World Bank’s survey, driving up the ranking. Of course, with greater application of the Insolvency and Bankruptcy Code, especially following the Reserve Bank Of India’s recommendation to refer 12 large bad loan accounts for insolvency resolution, the country’s ranking in this critical parameter will most likely improve further next year. On the massive 53-notch jump in tax filing, the World Bank said: “…paying taxes was made easier by requiring payments to the Employees Provident Fund to be made electronically, and introducing administrative measures that make it easier to comply with corporate income tax regulations.” The crowning glory, however, was “protecting minority shareholders”, where India is placed 4th, achieving a 9-notch jump from last year.
Even in getting credit, the country was ranked 29th, compared with 44th last year. The country’s tax dispute resolution mechanism seems to have improved. Transfer pricing disputes have fallen, and newer means like Advance Pricing Agreements and Mutual Agreement Procedure are now being used to avoid/settle tax disputes. In the interest of reducing litigation, the IT department has of late enhanced the threshold for filling second appeals. Last year, it withdrew a large number of appeals. The mechanism of mutual agreement procure (MAP) is also yielding good results (several US-based companies have signed for MAP and the India-US Double Taxation Avoidance Convention). Japanese firms too have signed. MAP allows for amicable resolution of issues across the table, with the tax authorities of both countries participating. It can go a long way in addressing the issue of double taxation and finding a common ground between the tax authorities and taxpayers on the import of treaty provisions.
Commenting on laggard segments, Jaitley said commercial courts have been set up and non-judicial intervention in arbitration is being promoted to improve enforcement of contracts. Various processes of construction permits, trading across borders and registering properties are being made online, which will help push up rank in future. The finance minister said since construction permits are usually handled by municipal corporations, which are outside the purview of the central government, states (Delhi and Maharashtra) will be requested to make the process much easier. In construction permits, India has been scoring abysmally for years·this year, its rank marginally improved to 181st from 185th last year. The World Bank doesn’t go by notifications on the government’s reform measures but takes into account the perception of reforms among private sector users, that, too, in just Delhi and Mumbai. So rankings in tax filing can fluctuate sharply next year, unless stakeholders are not sensitised enough about the GST. Already, the government has relaxed the GST filing requirement, making it a quarterly exercise, instead of the originally-planned monthly exercise.
The parameters where the country’s performance saw a decline from last year were registering property, trading across borders, starting a business and getting electricity. The ranking in ‘getting electricity’, the best performer in the last two years, worsened a tad to 29th from 26th last year. In trading across borders, the country is placed at 146th position, compared with 143rd last year. However, the biggest disappointment this year was a 16-notch plunge in “registering property”. Manish B Agarwal, partner and leader (Infrastructure) at PwC India said the improved investment climate will give an impetus to several Economic Corridors that are ready for investors.” “Going forward, the World Bank methodology could include a larger sample, to capture the significant improvements being made by several States.” Shobana Kamineni, President, CII said: “The government has strategically addressed choke points of the business ecosystem in a mission mode to improve India’s rank and break into the list of top reforming nations. With the active participation of the states, industry is seeing visible impact at the grassroots in the investment climate.”