UK firms say India has become easier for business, want solution to tax row

Annual report on UK companies says retrospective amendment to India's Income Tax Act is a dampener.

Companies in the UK find it easier doing business in India. But they also find the regulatory and legal hurdles, including those relating to the goods and services tax (GST), along with corruption, as major areas of concern, revealed a survey of 106 UK organisations operating in India, spanning manufacturing, services, and higher education.

The 'Doing Business in India Report 2020' by the UK India Business Council (UKIBC), formally launched by UK Investment Minister Lord Gerry Grimstone at a virtual round table  with Indian industry titans on Thursday, finds regulatory uncertainty - including retrospectivity of taxes - as a dampener on business.

The report is UKIBC's sixth of an annual series dating back to 2015.

“In spite of the ew challenges to business such as Brexit, Covid-19, and the global economic slowdown, UK companies not only remain deeply committed to India, but many are optimistic about expanding their business footprint in India,” said UKIBC Group Chief Executive Officer Jayant Krishna.

The report said, “Businesses in the UK tend to not anticipate that key rules of the game would be changed drastically after their investments have been made. From 2012 onwards, the policy of retrospective taxation has been a dampener on the inflow of foreign capital from the UK and elsewhere into India.”

The report found that 66 per cent of the UK businesses surveyed said they believed it is getting easier doing business in India as a result of "progressive reforms" and improvements in the components of India's business environment, such as the availability of support and service providers, skilled labour, and supply chain.

Though the rating on various parameters by these companies in a survey conducted by the UKIBC improved this year over the previous year, none of them is yet in the "excellent" or "very good" category.  

On a score of zero to five, the average score for India has improved to 2.92 in 2020, from 2.74 in the previous year.

“Legal and regulatory barriers were the most frequently cited obstacles to business, as outlined by 51 per cent of respondents. Foreign exchange regulations, GST process issues, high import tariffs, lack of alignment with international standards remain the top four regulatory irritants,” observed the UKIBC.

The survey suggests that improving bureaucratic processes with greater accountability, increasing regulatory certainty, simplification of the GST processes, improving the quality of infrastructure, and making single-window clearance effective were the most sought-after reforms by UK businesses, in that order, noted the UKIBC.

India's Aatmanirbhar Bharat mission is also seen by the UK firms as an opportunity to doing more business in the country, leveraging UK's innovation for manufacturing in India, the report found.

UKIBC Chair Richard Heald, OBE said this report comes at a time when the UK and India have committed to an enhanced trade partnership as agreed to by the UK Secretary of State for International Trade Liz Truss and India’s Minister of Commerce and Industry Piyush Goyal in July this year.

“Although a free trade agreement is the eventual goal, the immediate priority is to remove market-access barriers and make it easier for companies to operate in and enter the Indian market,” added Heald.

For the third year running, Maharashtra emerged as the state with maximum incremental improvement, followed by Karnataka, Delhi, Gujarat, and Tamil Nadu.

Next in sequence were Uttar Pradesh, Telangana, Andhra Pradesh, Chandigarh, and Haryana to complete the top 10, found the report.