The Indian government under Narendra Modi has been placed under corporate tax scrutiny again after another dispute with a mobile phone company; this time with Finnish multinational Nokia.
The news came forging into the headlines just as Vodafone won its seven-year long conflict with the New Delhi government. “It's a big deal because any company in any industry which is investing in shares of an Indian company, it impacts all of them,” confided Vijay Iyer, a tax expert at Ernst and Young in India, in a statement. “It was kind of a barrier for investment.”
Now the closing down and stagnation of Nokia's mobile handset factory in Chennai - the company has been prevented from transferring assets in India to Microsoft and mothballing of the building will lose more than 6,000 people their jobs - will fuel the ongoing question about the Indian government's multinational taxing policies. Although India is not alone in its frustration with large US companies exploiting the structure of developing market economies, 'The Financial Times' comments that Prime Minister Modi 'has set about the problem in the wrong way. A particular bugbear has been unpredictability.' This includes apparently picking and choosing when to file a suit depending on respective revenue targets rather than a blanket implementation of a financial regime, and opening cases retrospectively.
Acting on such advice is of course easier said than done, especially because of combating the re-routing of foreign and domestic investments through tax havens such as Mauritius or Monaco and the fact that ascertaining regional rights with transfer pricing is a nebulous area. However, as deputy chief executive of KPMG in India stated concessions such as the ruling with Vodafone is “quite a momentous judgement” for keeping international investors interested. An ever respectable authority on the matter, 'The Financial Times' implored Modi to address “capricious tax demands” first and foremost in the next budget plans.
In the wake of the “make in India” campaign that drives for manufacturers to set up in Asia's third-largest economy where Modi plans to increase the manufacturing sector's share of gross domestic product from 15 to 25 per cent, it is important that there is no enforcement dispute when there is tax-dispute.