In the many years since I turned entrepreneur I have realized that doing business in India is almost like walking through a landmine. One has to negotiate unstructured policies and ambiguous laws almost like one would a landmine. Businesses are plagued with outdated rules and complicated procedures; there is no transparency, no clear answers even by the governing bodies, nowhere where the buck really stops.
One of the potholes that I fell into is the retrospective nature of Indian laws. It made me understand the pain and frustration of Vodaphone. One of my business verticals is selling mobile phones, a venture that I started in 2010. The mobile phone was sold in a single unit along with the charger and the tax per unit was 5.5%.
In 2015, the government suddenly realized that the VAT on the charger is different from that on the mobile phone. They ruled that tax on the charger should be paid at 14.5%, while that of the phone stayed at 5.5%. They demanded that the tax be paid with immediate effect and that too retrospectively! Which meant that I would have to pay taxes for the charger component for the last five years at the rate of 14.5%. Not only did they levy a retrospective tax but they also charged a penalty plus interest.
The Karnataka mobile traders association went to court, appealing against the order, but our appeal was rejected on the grounds that there was no merit in it. This is despite the fact that in the neighbouring state, in a similar case an order was passed in favour of the traders. The court, it seems, does not follow its own precedent.
In such circumstances the businessman is stuck between the devil and the deep sea and can take recourse to neither the courts nor the laws. On the one hand, a business law is applied randomly and retrospectively; and on the other one cannot take refuge in the courts either. Is it any wonder that the average businessman will try and find a way out somehow or another?
Currently, the government is mooting a GST (General Service Tax) that should come into effect from July 1, 2017. This will hopefully give clarity and remove all ambiguity.