India 10th most complex country for accounting, tax compliance

India has been ranked 10th among the most complex countries in the world for accounting and tax compliance. The appraisal followed the survey done by a leading MNC across 94 countries in Europe, Middle East, Africa, Asia and America on the ease of doing business. As per the survey, rank “1” means most complex, while rank “94” means the least complex. India’s taxing and accounting system has been found to be more complex than Pakistan’s (19) and Myanmar’s (73). China fares worse than India at 7. Turkey is ranked 1, followed immediately by Brazil and Italy. In the Asia Pacific region, India is ranked as the third most complex country behind Vietnam and China.

The survey, titled “The Financial Complexity Index-2017” was done by TMF Group, a multinational professional service headquartered in Amsterdam, the Netherlands. It has offices in over 80 “jurisdictions”, that is countries.

The five least complex jurisdictions that have simplified reporting requirements and beneficial tax rates to encourage investment, as per the survey, are Jersey (90), Hong Kong (91), the UAE (92), British Virgin Islands (93) and the Cayman Islands (94).

The survey was done before Goods and Services Tax (GST) comes into effect and has raised questions on the seriousness of some bureaucrats regarding Prime Minister Narendra Modi’s call for easing the environment of  doing business in India.

The report reads, “The country’s (India’s) current tax system is complex and multi-layered. Cross-border compliance, compounding of taxes on domestically produced goods and services, in addition to several Central and state taxes, exacerbate the complexity of the system. Key factors that increase complexity include the various statutes governing taxation and foreign investment—the Foreign Exchange Management Act (FEMA), the Income Tax Act (ITA), tax laws of 29 states and seven union territories. Furthermore, no one can ignore custom guidelines for any import and export of goods and services in India.”

As per the report, the TMF surveyors examined the varied complexities of financial accounting and tax compliance in 94 jurisdictions worldwide, with 50 countries in Europe and the Middle East, 24 in the Americas and 20 in Asia-Pacific.

The ranking was done on the basis of 70 detailed questions that were put across in-house accounting experts and tax experts to rank the complexity of their local jurisdiction.

The surveyors focused on the accounting and tax rules and regulations in different jurisdictions, how to incorporate relevant regulations into the business and the risks associated with non-compliance.

According to Indian tax experts, the introduction of GST will increase the number of returns that a businessman will have to file from two to 49. A service provider, who until now has to file two service tax returns per year, will have to file three returns on the 10th, 15th and 20th of every month, that is 36 returns per year under the new system. This will be apart from the 12 tax deducted at source (TDS) returns and one annual return that the service provider will have to file.