EASE OF DOING BUSINESS IN INDIA – A Chartered Accountant’s Perspective

By CA Jayaraman P.P. (ppjcaoffice@gmail.com)

As published in TISA Magazine – Dec 2019 issue

Looking back

Statutory compliance of Businesses has undergone massive changes for the better in the last 30 years in India.    

India after independence was a mixed economy which incorporated the principles of both capitalism, as well as, socialism.  Though India was a mixed economy, in the initial decades, it was more skewed to the socialist side. This has now changed remarkably in the past 10 years, with more changes around the corner. 

The latter-day leaders realized, or were made to realise, that wealth creation and progress are more assured in a capitalist economy than a socialist one. As a result, more emphasis is being placed on making the Government more supportive to the interests of the businessmen. 

Increasingly, the main concern has been that the compliance burden should not weigh down businesses from expanding, and at the same time, there should be proper compliance for a sustained growth of the economy.

Racing ahead

India has jumped 14 places to take the 63rd position on the World Bank’s ease of doing business ranking. The country was 77th among 190 countries in the previous ranking. In its Doing Business 2020 report, the World Bank commended the reform efforts undertaken by the country.

If you recall India stood at a dismal 142nd out of 189 nations just 5 years back in 2014. When Finance Minister Nirmala Sitharaman says that a sub-50 ranking is now our aim, one realizes the sea-change in Government’s attitude to business. 

The improvements have happened in various areas ranging from:

  • Legislative amendments 
  • Better implementation 
  • Use of the latest technology and;
  • Lessening the human interface. 

In the past, before government adopted electronic means for compliance, lots of time used to be wasted on certain unproductive, non-value adding jobs which were, however, required for proper compliance. 

To jog your memory, here are a few such jobs in which a lot of time was wasted in the past, with special emphasis on Income Tax, Sales Tax and Service Tax.

  1. Getting the correct forms from the departments.
  2. Submission of these forms by waiting in long queues. 
  3. Visiting Government departments personally for follow up.
  4. Getting certificates, approvals and permissions from the departments.
  5. Following up for refunds with IT departments. 
  6. Printing of various physical reports and statements.

Today, most of the jobs listed above are not required anymore, as most of them have been made online. All one needs to do, is have good computer devices and fast internet connections.

 Areas where lot of changes have taken place

 

Particulars

Sl No 

Income tax /TDS/GST /VAT/CST/Prof Tax

1

E Registrations / E issue of Registration certificates 

2

E payment of adv tax/TDS /Self-assessment taxes/Fees

3

E filing forms, ITRs, / applications Digitally signed forms 

4

E Processing of permissions/ Returns 

5

E assessment of returns and faceless scrutiny (newly started)

6

E Appeals (filing, order upload etc)

7

E follow up (Rectification/ refunds / arrears clear up)

8

Online issue of TDS certificates

9

Removing the requirements like Income tax clearance certificate

 

  (many forms and permissions are now done away with)

10

Strict Enforcement now can lead to better compliance 

What has contributed to the change?

The following factors have contributed to the ease of doing business in India as far as taxation compliance is concerned. 

Legislative amendments:

Many amendments in the Income Tax Act have been made in the last ten to fifteen years to do away with unnecessary paperwork, approvals and clearance certificates.  Enactment of the Information Technology Act, 2000 gave legal sanctity to electronic evidences. Slowly, there were many other legislative amendments that came in support of introduction of technology in statutory compliance. 

Technological improvements

The credit for ease of doing business cannot be given to the legislative amendments alone. 

Electronic filing of Income Tax returns was legalized in the year 1998. Soon other departments followed suit. Today, all Government Departments are online with all registrations and compliance. 

Why even the traffic police fine/levy of penalty has gone online and you get an E Challan for payment of your fine for wrong parking etc., by way of SMS!

The Transition process & effects

Transparency & reduced corruption

With the advent of Y2K, there was a lot of advancement in Information technology, which enabled the Government to adopt technology for E-governance.Technological advancement in E-governance has also helped in reducing the human interface which has immensely reduced corruption. Transparency and accountability has increased among assesses and professionals as well. 

Reduced time required for travel & compliance

Technological improvements have also added value to business. It has reduced traveling time of businessmen, professionals etc to a great extent enabling them to concentrate more on their core work. Earlier, most professionals had their offices in the main city areas and used to travel on a daily basis to their office from the suburbs. Nowadays this has reduced to a great extend which has given extra time to the professionals to update their knowledge or to pursue their passions.

Earlier, filing of income tax return used to take anywhere between four to five days, from tallying of trial balance to preparation of computation manually, calculation of tax manually and then filling up the lengthy form of about fifteen to twenty pages, again manually.

All this has been now replaced by computerized accounts, preparing of computation and ITR form filling handled through the income tax software, which are either of the Government site or private companies, which are very simple and nearly effortless compared to the manual filling up of forms. 

Forms/Explanations not accepted

However, on the flip side, it has reduced the human interface almost to NIL with the result that certain forms or explanations are not getting accepted by the departments as the online portal has certain standard reasoning with a drop-down list in which one needs to fit in to solve their query. 

This of course is only a teething trouble of sorts and should disappear in the next couple of years when the users become more aware of the requirements of the system and the department comes out with more items in the drop-down lists.

Short response time

Further, it has made the response time very short for all professionals and businesses in general.  For example, as a professional, you need to respond to an email query for an opinion, on the same day or the very next day. Otherwise it will be considered unprofessional by the clients.

Earlier, it used to take a lot of time, even weeks to get an opinion from a professional.  No, even Assesses from other cities are able to get an opinion from say, Mumbai experts at a short notice.

Earlier, the due dates in income tax were earlier not very strictly enforced and you could always file a Form 6 for any delay in filing the return of income.   You only needed to furnish the reasons or circumstances beyond your control which delayed your return. Only in exceptional cases, would the ITO refuse to extend the date of filing the return.

Nowadays as the due date approaches, the professionals pray that the date be extended. Even though the department has fixed due dates, clients have still not changed their mindset in endlessly delaying the giving of necessary details and paying off the tax before the due date. Most of these happen during the last few days of the due dates and often, even at the last minute.

Youngsters in the profession are completely attuned to e filing, e payment etc but what they may not know is that there used to be a time when these were unheard of,  and all the CAs and other professionals used to literally work night and day  to tally a trial balance and go through voluminous papers and bulky account ledgers  to make handwritten copies of the final accounts  and give it then to expert  typists for typing them out.  

Even Xerox was just in its beginning stage and all agreements and other documents used to be typed out again and then “Certified as true copy”!

But is there real ease of doing business?

If some things have become simplified, the responsibilities and requirements of compliance in various areas has truly multiplied. 

  • Compliance requirements from various authorities 

Nowadays for passport, Visa, bank loans, housing loans and for various other things like credit card issue, you need the tax papers to be given.  There have been cases when a student’s US Visa was not cleared due to her parents’ non-compliance with tax laws in India.

  • Compliance for Government Panel Memberships 

Many of the Government panel memberships are allotted only where the statutory compliance is proper and timely. The Government and regulators like SEBI, ROC and Stock Exchange have also been regularly upgrading the compliance requirements.

  • Requirements of big business  houses while awarding contracts to small contractors 

Even for small time contractors, statutory compliance has become very important to get new contracts or for even qualifying in the tenders with big PSUs, Corporations and governments. 

The way forward 

Now after the  success of efiling,  epayment ,  e assessment, faceless assessment (which has now started very recently) and e appeals,  as per  the plans of the Government, the next step will be the hearing of Income Tax Appellate  Tribunals on Skype,  saving the time of both the judges and professionals, in traveling, waiting for their turn to be heard, avoiding unwanted adjournment applications and passing of ex-parte orders .

In the past because of lot of paper work, enforcement was not so strict as even the Department could not get much time for data mining and analysis.  Now you can expect stricter enforcement from the department.

Change in mindset of youngsters.

The new generation of entrepreneurs is very much interested in proper compliance since everything is online now and they do not mind the cost attached to the compliance. There is an attitudinal change. As one youngster told me, he would rather pay a professional to comply with the requirements to be on the right side of law, than pay a penalty later.  

In fact, he had a board in his office which read “if you feel compliance is costly, try non- compliance”.  This board should actually be kept in every professional’s office. The youngsters want to simplify their lives and have some free time, unlike earlier generations, to enjoy life.

As professionals under the changed circumstances, the time has come for introspection and change. It is clear that specialization and doing a limited amount of work is what the future dictates. Maybe, this is the only way to attain the much sought after dream of a “work life balance”.

 

 

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