Cracking the new tax code

India’s complex tax system is set for wholesale reform. Alfred Romann investigates the proposed changes and assesses how they will affect domestic and international businesses

An Indian diplomat tells India Business Law Journal that he uses his personal tax bill as a measuring stick to gauge the progress of the country’s economic reforms. He says that not so long ago he never saw nine out of every 10 rupees he earned. The situation has now changed to the extent that Indian taxes are actually lower than those in many of the other countries in which he has worked.

Changes to India’s taxation system over the last two decades have significantly reduced tax rates for companies and individuals alike. However, they have also made the country’s tax code highly complex. As tax experts might well joke, India’s current tax legislation is as difficult to interpret as a Sumerian cuneiform tablet. The system’s plethora of rules, addenda, exceptions, press notes and loopholes means that multinational companies need teams of lawyers simply to decide on their tax strategies, let alone manage their inbound or outbound cash transfers.

Ketan Kothari, a senior consultant and tax expert at Thakker & Thakker in Mumbai, describes the current system as “pretty complex”, which is partly due to the frequent amendments, many of which apply retroactively. Some contraventions have taken decades to rectify, and when taxation cases appear before the country’s courts, it is not unusual to see them linger for as long as 15 years before they are resolved.