How rules pull down the ease of doing business

Make in India will be easier if the makers can import essential ingredients and spares without tonnes of paper work .

With effect from 1st June 2015,by an amendment to the finance bill, every importer who wants to transfer any payment for purchase of any item or a low value spare part, will need to submit form 15CA and 15CB( from a chartered accountant).

The amendment reads this way:
“In section 195 of the Income-tax Act, for sub-section (6), the following sub-section shall be substituted with effect from the 1st day of June, 2015, namely:— “(6) The person responsible for paying to a non-resident, (not being a company), or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.”.

What was earlier applicable to NRI payments, eventually got applied to Foreign companies and what was applicable to taxable payments later got applied to cases “whether taxable or not”.

Form 15CA is a declaration by remitter that the foreign supplier has no tax liability in India. 15CB is to be obtained from a chartered accountant to confirm this. Earlier this was needed only if the transaction is taxable in India , but now it is added that it is necessary whether the transaction is taxable or not.

To back up this, the importer is required to get another declaration from the foreign company that he has no tax liability in India and banks are also asking them to fill up form 10F confirming tax residency and no tax liability. An added demand is to produce a tax residency certificate of the supplier company issued by that country’s tax authority. The whole idea seems to be to subcontract the job of locating potential tax payers to Indian manufacturing companies and their chartered accountants. A small scale industry buyer told me that to purchase a 300 euro spare part for the only machine he has in his shed, he was asked to provide all these forms and spend Rs.8000 for the CA certificate.

Many foreign countries that sell to India have Avoidance of Double Taxation agreements with India and there is no tax liability. Though in such cases, a Tax Residency certificate will answer all these questions, many importers are running around to collect these impractical documentation, going by the letter of the amendment.

Even when the foreign firms have Indian subsidiaries, they will be operating as independent legal entities for the purpose of taxation and need not be Permanent establishments of the foreign parent. If at all government wants to collect some tax from such subsidiaries, the easiest thing would have been to pass a law that all subsidiaries of foreign companies operating in India must pay an extra Income tax of x%.

That could have avoided every importer of a screw or pin running after foreign companies to get impractical declarations and then run after chartered accountants to provide certificates for which they have no data available. No foreign company has the facilities to respond to thousands of requests from India to produce declarations and forms for a 300 Euro order from India. That is not the way the world do business.

If the Indian chartered accountant has to give a certificate that the foreign company that is supplying 300 euro spare part to an Indian small business, about the foreign company’s tax liability in India, he need to have access to the books of accounts of the foreign company, which is totally impractical. Make in India will be easier if the makers can import essential ingredients and spares without tonnes of paper work .

“Ease of business will improve here if simple business processes are not complicated by avoidable new laws.” – A.P.Jàyanthram, Managing Director, Heidenhain Optics & Electronics India Pvt. Ltd