I wrote a post in 2018 about the ridiculousness of our banking system—
That post is from 2018 and in 2020, things have actually gotten worse. Please read it before you read this post so you fully understand the absurdity of what we’re going through currently.
Since 2014, a lot has been spoken about Saral and transparency and single-window …. and doing business should have become easier. But in all honesty, it has actually become more cumbersome than before! If there is one thing our government is good at, it is in taking an already complicated system and somehow managing to further complicate it! Their skill at it is quite phenomenal. Allow me to share a further example from personal experience and then talk about why it is important to raise this concern.
We are an ITES firm whose clientele is 100% foreign and every rupee we earn comes into a bank account. The tragedy of working through PayPal etc with the rules set by our Indian Govt are already detailed in that earlier post. Nothing has changed from that except the dollar conversion rate. Now let’s get into how our people managed to screw it up further!
When GST was first introduced, companies like ours were initially not in its ambit since we were not providing services to Indian firms. Last year, the Govt decided that they were not troubling us enough. So they decided to bring IT and ITES firms under the GST umbrella even if there were no Indian payments being made or received, and they started issuing notices even as the large IT firms rallied to fight this ludicrous idea. The terminology used by our beloved government was quite insulting, and a sector which provides much of the nation’s forex inflow plus millions of high-paying jobs could do nothing about it.
Allow me to describe what this ruling has done for us. The only way for us to get money into the country is into our bank accounts, after submitting invoices to our banks, which in turn are forwarded by them for compliance. On this, the bank (and the Govt) levies a forex conversion margin. Plus the bank takes a fee of $12-$25 per transaction for crediting our money. On both these fees there is GST which the Govt makes. So they’ve already charged us as soon as funds hit our shores. From there on, it is like any other company — we are liable for Indian taxation laws as usual — 25%+ corporate tax, directors pay upto 30% personal income tax, TDS, etc. Now let’s get to the new GST part. In order to bring in this revenue, we have several service providers in various countries. For instance, our servers are on the cloud, domain renewals, hosting etc are international, we have developers who we pay per gig, we have international freelancers we hire, we have specific agencies that we contract with for specialised tasks as needed by clients, all these mean dozens of payments made every month. If you’ve read the earlier article, you may recollect that each of these payments is susceptible to the inflated USD conversion charge, plus fees of agencies like PayPal (on which there is a GST levied again), and bank fees. Many of these payments go from our credit card (which again is a story you may remember from the earlier post).
Now this new ruling states that we are supposed to pay 18% GST on every rupee we spend towards an international expense. So if we spend ₹10,00,000 a month towards the above-said services, we are to declare this expense and pay 18% on that — ₹1,80,000 plus GST on that — on a monthly basis. Then we are to file a return for that amount since it is not an Indian expense and isn’t actually liable for GST, and in a month or two, that money, less any deductions as mandated by the Govt (plus the GST on the tax amount is gone anyway) will be refunded to our account. There is a daily interest on this amount too since we pay it once every month, and that is non-refundable. Does any of this make sense? The Govt knows that this money isn’t liable for tax since it is anyway an international transaction and has been made via our account or card on which they already levied fees. Then they want us to pay 18% fully knowing that it will be refunded — just to collect GST on top of the tax amount and have some money in rotation? For this, we had to hire a specialty GST agency and they charge us ₹15000 plus tax per month 🤯
There will be some Dritarashtra supporters of the regime who will come in response to this post and say we can claim input credit and other nonsense. We hardly have any input from India on which we can claim credits! Just the GST on rent and local services we consume are enough even if we had input. Most firms are like us. And even if we had more, why would the Govt want to put firms through this rigmarole?? It isn’t to eliminate black money since companies like ours are zero-cash. It isn’t to increase transparency since they already have access to every rupee coming into our accounts (they already levied a tax on forex conversion and know exactly how much we’ve earned), they have our DIN numbers and company filings are mandatory, we go through a statutory audit once every couple of years. So what use is this torturous additional 18% mess? It takes a few months for the cycle to complete and firms to get back what they paid. Which means their working capital requirement has gone up by 50%+! This is not counting the additional fees plus other expenses this ruling needs us to spend on.
Since I’m in the ITES industry, my examples are specific to our sector. But every sector has the same challenges. Some more so since their entire business is conducted in India and they are susceptible to even more ridiculousness than we are.
Everything this Government does in the guise of benefiting its citizens boomerangs and make life more difficult for us instead. STT was supposed to be temporary. LTCG / STCG were supposed to do away with transaction tax or vice-versa, depending on who you listen to. Dividend Distribution tax keeps coming in and out of our budgets and no one knows what it means in the long term. Every cess levied starts off as being temporary. But none of them are ever actually removed! The cess on fuel keeps getting adjusted each time the citizen actually stands to benefit from low crude prices, and the argument is that we are paying the same amount!! How foolish is that 🤦🏻♂️
Yesterday’s announcement of ₹20 lakh crore is yet another classic example. It is incredibly difficult to understand what they even mean. So much was said which is open to interpretation, and we have no expectations of clarity even! Just the number with a lot of zeroes will be remembered and tooted. Over the last few years, Andhra was supposedly given ₹1.8 lakh crores, Bihar was given ₹1.2 lakh crores, J&K was given ₹ 80000 crores,…. where is that money! How did they even calculate those absurd figures!! Our own income tax returns are mentioned as a ‘benefit’ to us? What would the Govt do otherwise, keep them? Actually, they may decide to do so, and many geniuses would come out and support that idea!! 😡
There is a reason for this blogpost. Not just to crib. Most of us (Govts included) are terribly short-sighted and get caught up in the moment and support poorly-thought arguments. China is currently a country-non-grata and this is a great time to showcase our prowess as a worthy alternative to that behemoth. It is in times like these that our tax harassment comes into focus. How do we attract companies with such an unpredictable tax and governance structure? What is said one day is changed the very next day. Questioning the U-turn makes one anti-national! We want to attract the best companies in the world but want them to follow draconian policies and keep pushing paper for years together! Our land policies are a quagmire. Our labour laws are irrational. Getting clearances and permissions is excruciatingly difficult.
In spite of this, if our country is chugging along, it is only because of the fortitude and steadfastness of its people and not because of the Govt. It is like a game that keeps getting tougher as we level up. And this has to change if we to truly unlock our potential and grow to be a global leader. We owe it to our children to make this country a better destination for investment. This distrust has to be done away with. Our Govt has to trust its people and companies and reduce the amount of compliance. Technology anyway gives them access to everything. Just because they’re not capable of understanding and using technology, they want to force people to go through hurdles and bottlenecks at every juncture.
Without a change in these policies, forget 2024; we won’t become a $5 Trillion economy by even 2029.
