26
AUG2017
FOOD FOCUS THAILAND
SURF
THE AEC
Removing theComplexTaxSystem.
India, which is a large country, is administered under a decentralized
systemcomposingof onecentral government and29states.Eachstate
wouldhave theirownadministrationandwerepreviouslyallowed to levy
different tax rates. As a result, India had among themost complex tax
system in theworld, of whichhas beendeterring foreign investors from
India. Key obstacles for doing business arose from the old tax system
includes 1. Understanding the tax system is too time consuming, 2.
Inspection is difficult due to havingmultiple tax collecting agencies, 3.
Huge incentive to bribe officers, 4. State-border trades have high cost
in both terms of money and time, and 5. Problems in exports and
manufacturing.
TheNew, UnifiedTaxRegime
GST (Goods and Services Tax) is a system that will unify tax rate on
goodsandserviceswithin thecountry. Thesystem isachange from the
previous that allowedeachstateset their own tax rate. Thenewsystem
would replaceapproximately15categoriesof indirect taxsuchascentral
sale tax, entry tax, Octori, VAT, Excise tax, etc. Each product will be
imposed the same rate throughout the country. Furthermore, tax
procedures will be required to conduct online in order to avoid contact
between taxpayersandgovernment officers. For intra-state trading, tax
ongoodsor serviceswill becollectedbybetween thestategovernment
(StateGST:SGST)andcentralgovernment (CentralGST:CGST)equally.
Therefore, assessment procedures is expected to be strictly complied
on both governments. For inter-state trading, the tax, called integrated
GST (IGST), will be levied solely by central government.
It’sTime forThai Investors toFindOpportunities in
India.
Thai investorsshould turn theirattention towards Indiaas theyarealready
steps behind foreign investors. Since the government under Modi’s
administration began in 2014, firms all over theworld saw the potential
for growthandhavesince rushed for opportunities. Thevalueof foreign
investments has since been increasing at average rate 28%YOYwith
major investments coming fromSingapore, Japanand theU.S..On the
contrary only 20 Thai companies
1
currently have investments in India.
Total investment valueof Thai firms in Indiaat theendof 2016 stoodat
USD906million, or onlyequates to7.8%of the total investment of Thai
firms inCLMV even though India has a population size 8 times greater
thanCLMV.
Thai businesses that have potential to benefit from this tax reform
are businesses related to logistics and consumer goods.
1. Logisticbusinesses
will haveanobvious gain from this reform.
Although currently several global logistics firms have already entered
the Indianmarket, themajority of themarket share is still accountedby
local logisticscompanies
2
.Thecomplexityof India’s taxsystemhasbeen
an important hurdle for foreign firms, leading local businesses to have
theadvantage.This tax reformwill bekey tounlocking the logisticsector
in India. A summary of expected changes to the Indian market and
significant opportunities for Thai investors includeMore logistic service
outsourcing, Lower logisticscost, andDrawingupplans forwarehouse
construction andproduct distributionwill beeasier.
2. Consumer productsbusiness
suchas processed food, drinks,
soap, shampoo, clothesandhouseholdproductshave immensegrowth
potential given the size of consumer population in India. This business
also stands to benefit clearly from this tax reform. The key impacts on
this business groupare as follows.
• More efficient distribution. Businesses related to consumer
products requiregooddistributioncoverageof their end-user; therefore,
lower logisticcostwill thusobviouslybenefit thisbusinessgroup. In fact,
India’sGST
thebiggesttaxreform
India is a country that brings tomind diversity and complexity in virtually all aspects. Its
variety of culture, ways of living between social groups and large population size of over
abillionhasbeenkey featureattracting the focusof investorsall over theworld.Yet doing
business in India is no easy task. Trivial regulations and inconsistencies between states
areonlypart of theproblem that has led India’s to rank130
th
ineaseof doingbusinessout
of 190 countries. Until now, the current government under leadership of Prime Minister
NarendraModi ispursuinganambitiouseconomic reform inmultipleareas.Oneof the top
priorities is thebiggest tax reform since the country’s independence in1947. Thenew tax
system calledGoods andServicesTax (GST) is now rolling out across India.
opensnewopportunitiesforThai investors.
Exporters divert their shipment to longer route just to avoid
state-border checkpoint
Source:
EICanalysisbasedondata fromWorldbank,Apparel Resources, andGooglemaps.
