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Why India fared badly in World Banks Doing Business survey
October, 26th 2016

If you are wondering why the Narendra Modi-led government’s slew of reforms in the last two and half years to make it easier to do business in India have failed to impress the World Bank, as reflected in its poor show in the latest Doing Business ranking, then look no further. There is one single factor that may have restricted India’s improvement in ranking this year to only one notch at 130: post-filing index.

The World Bank has included the “post-filing index” criteria for the first time this year under the parameter “paying taxes”. It measures what happens after a firm pays taxes, such as tax refunds, tax audits and administrative tax appeals. The World Bank said this methodology update is the final indicator changed as part of the methodology update initiated in Doing Business 2015 survey.

The post-?ling index is based on four components—time to comply with value-added tax (VAT) or goods and services tax (GST) refund, time to obtain VAT or GST refund, time to comply with corporate income tax audit and time to complete a corporate income tax audit. In “paying taxes”, the new post-filing index component accounts for 25% of the overall indicator.

The VAT refund is an integral component of a modern indirect tax system. Some businesses incur more VAT on their purchases than they collect on their taxable sales in a given tax period and are, therefore, entitled to claim the difference from the tax authorities.

India scores abysmally low on “post-filing index” criteria at 4.27 out of a maximum score of 100. This has brought down India’s “paying taxes” ranking by 15 notches this year to 172 among 190 countries. This has negated India’s improvement in other areas with its overall ranking improving just by one notch to 130 in this year’s ranking.

Only two countries out of 190 countries surveyed have lower scores than India on post-filing index: Timor Leste (2.79) and Turkey (3.9). Even war-torn Libya with overall ranking of 188 out of 190 countries has scored 90.83 under this criteria.

The World Bank has also highlighted this issue in a press statement on India. “The Paying Taxes indicator has been expanded to cover post-filing processes, such as tax audits and VAT refund. These new measures reveal space for improvement in India. For example, it takes 54 hours to comply with a corporate income tax audit in India, compared to the global average of 17 hours,” it said.

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