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Indirect tax cost, bureaucracy among trade barriers for MNCs
June, 28th 2013

Indirect tax costs, formal rules, restrictive regulations and bureaucracy can be barriers to international trade for multinational firms operating in rapid growing markets such as India, Russia, Brazil and Russia, a study by Ernst & Young said on Sunday.

“Multinationals are finding that indirect tax costs, formal rules, restrictive regulations and bureaucracy can be a barrier to international trade,” Ernst & Young said in its report on Managing Indirect Taxes in Rapid-Growth Markets.

The report said global firms in these countries are concerned about management of indirect taxes. “The need for effective management of indirect taxes in rapid growth markets (RGMs) to avoid unnecessary costs and risks and maximise market opportunities is the primary concern for many multinationals,” it said.

The report also suggests that governments in such countries rely on indirect taxes to bolster revenues, reduce fiscal deficits and fund infrastructure projects. However opportunities exist to improve business outcomes, speed up deliveries and reduce costs, it added.

“In countries such as India and Brazil, the application of multiple taxes and the rapidly evolving tax landscape also may increase these difficulties. Effective controls, robust processes/documentation, standardised procedures and the use of appropriate technology can help to improve accuracy and reduce risks,” the report said.

Collaboration across functions and geographies, building relationships with trusted third parties and tax authorities can help make most effective use of scarce resources and avoid costly and protracted disputes, it said.

“Most RGMs have a complex indirect structure and India is no exception...This has what lead to demand for GST by stakeholders for the last few years.

“Though recent months has seen positive developments with consensus emerging on several areas between centre and state, implementation stills looks distant and not before the formation of a new government in 2014,” Harishanker Subramaniam, Partner & National Leader - Indirect Tax Services, Ernst & Young, said in the report.

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