Why preparation is key when doing business in India
13 June 2017
Posted by: Arne Mielken
Article by Arne Mielken, Young President, IOE&IT
Following the UK’s exit from the EU we will be able to create FTAs with markets around the world. The prospect of signing an agreement with India in particular is an exciting one for UK businesses. The two countries have an historic connection and multiple recent UK PMs have made overtures to the Indian government towards increasing trade between the two countries.
India is indeed a massive market with 1.3 billion people and the fastest growing economy in the world. But whatever happens with the UK in relation to its trading position through or outside of the EU, India has long been a difficult country to do a free trade deal with.
As things stand EU and global companies continue to face expensive and varied tariff and non-tariff trade barriers, and current import duties as high as 60% in sectors such as automotive.
What are the chances of an FTA with India?
FTAs (Free Trade Agreements) are signed between countries to facilitate more exports and imports between their businesses and do so by reducing tariffs and duties, as well as simplifying some of the bureaucracy involved in selling to that country.
FTAs take a notoriously long time to negotiate though. The EU-India trade deal has been rejected by India’s trade minister due to restrictive environmental and social standards set by the EU and should the UK want to agree an FTA with India it will likely have to negotiate similar hurdles.
The EU-India trade deal, which has been discussed for some time now, is being designed to help boost trade, jobs and economic growth in both regions. But even when it’s agreed it will not be without complicated compliance issues that companies will need to prepare for.
Indeed, a new bill being put to the Indian parliament that will replace the current roster of indirect taxes could bring in a new wave of regulation for companies to comply with.
Explaining the Goods and Services Tax
The Goods and Services Tax (GST) would mean that imported goods and services would face a three-part GST structure that includes federal state GST for federal services, central government GST (CGST), and an Integrated GST (IGST) overriding tax. The bill awaits parliamentary consensus but should it be passed it will be enforced on July 1 2017 – pretty soon!
While the tax is supposed to slim down some of the variety of taxes currently faced by companies selling into India – and simplify price and freight calculations - for many companies, tax documentation with the new three-part GST structure will be more complex.
Companies will need to be able to adapt their accounting and to be able to check their distribution channels and price calculations when GST is introduced.
Acquiring the skills and tools of the trade to do it right
Should an FTA be agreed or not with India – by the EU or by the UK independently after leaving the EU – there are various Global Trade Management solutions (GTMs) out there which can help companies to see the wood through the trees and manage complicated tax regulations including the GST.
And companies will need to have the in-house knowledge and skills to interpret the FTA rules, tax regulation changes, and information provided by the GTMs.
We at the Institute have always advocated learning these skills and our qualifications and training courses are designed to help companies get to grips with the complications involved in doing trade with countries such as India.