India has moved up 20 points in the World Bank’s ease of doing business, but is a laggard, at rank 115, when it comes to ease of paying taxes. While the tax cuts that have been carried out are welcome, on the more vital front of providing tax certainty, India is not only a straggler but has actually been slipping. The Advance Pricing Authority (APA) on matters related to transfer pricing, and the Authority for Advance Rulings (AAR), which tells those who seek clarity on their eligibility for availing of various tax-planning opportunities and arrive at the tax rate applicable to them, are admirable bodies meant to provide tax certainty. These bodies have lost steam of late.
At present, of the 1,125 pricing applications filed before the APA, 750 are pending. A decision takes an average of 30-40 months. This delay costs the applicant money. If the ruling is at variance with the applicant’s expectation and the tax paid as per that expectation, interest and penalty would accrue. Delay annuls the very purpose of seeking clarity in advance on the price that would qualify as being sufficiently at arm’s length in a particular kind of transaction. The reason for the delay is poor personnel policy.
To make advance pricing, a certain expertise is required, particularly familiarity with tax treaties and their working. If those who attain that expertise are transferred out and there is insufficient attention paid to training and staff planning, there would be shortage of people to do the job at hand. A similar affliction has crippled the AAR as well, where decisions come in in five to six years, instead of in six months, as planned.
These are low-hanging fruit, in the quest to improve India’s ease of doing business. Plan human resources — skill acquisition and training, along with transfer and promotions — to ensure APA and AAR are adequately staffed at any point of time.