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COMMENT: Why India is not ready to join the OECD

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Despite India today ratifying the Convention on Mutual Administrative Assistance in Tax Matters, the country is still not ready to become a fully-fledged member of the OECD and must change its attitude to international cooperation.

Numerous advisers and taxpayers have demonstrated an air of arrogance that must be banished if India is to continue its rise to join the ranks of the world's strongest economies. Tax professionals have claimed that India "is too big and powerful" to join, while others have proclaimed that "the OECD wants India, India does not need the OECD".

It is easy to see why so many think like this with the country experiencing year-on-year economic growth of 8.5%-9%. Would OECD membership improve that?

No. It wouldn't. Investment will still take place and money will still be ploughed into the country. And as India grows, the outbound investment will follow too.

But these facts are ignoring the concerns being expressed by domestic and foreign taxpayers.

India regularly receives a bashing at conferences and events throughout the world. Many lament official interpretations that manage to hinder business, while others criticise the slow and frustrating processes of the country's tax authorities and judicial system.

A speaker at an International Tax Review event in Singapore last year explained that if India joined the OECD, then the organisation would cease to exist as it is known today. They said that India would make demands on how the organisation is run and would bring its own inefficiencies and bureaucracy to the structure.

There is no doubt that India is a powerful economic force now and carries plenty of influence around the world. But the country should continue to add to its experience and become comfortable with how the OECD works first.

The OECD is primarily a group for developed countries. India is developing, not developed. It will have to accede to the organisation's demands and standards. The OECD was around long before India's growth began and has been the hallmark for numerous international tax standards.

No one doubts that India will join the OECD at some time. One hopes the three-year agreement between India and the OECD for greater tax cooperation will shed some light on the way things are done at the organisation and will filter down to a practical level among tax officials and the government. If it does not, then expect trouble ahead.

Very honoured

"We'll be very honoured [if India decided to join the OECD] but it's up to them to start the process. We have made clear to Indian authorities that they can start the process," the secretary-general of the OECD, Angel Gurria, told delegates, including the Indian finance minister, Pranab Mukherjee, at a seminar in Delhi last June.

The OECD and India have been working together for 16 years. In May 2007, the OECD Council adopted a resolution to strengthen the cooperation with the country through a programme of enhanced engagement.

"Our engagement with India is with same rigour as would be with any member country," said Gurria, who attended the two-day seminar jointly organised by the finance ministry and OECD.

The OECD released a survey on the same day that said India could potentially step up to a 10% growth rate year-on-year over the next five years, but urged more fiscal reforms, increased infrastructure investment and a relaxation of labour laws.

And it is these reforms and policy changes that India must implement if it can realistically consider itself – and be considered by the OECD – for full membership. Tax is going to be integral to India pushing towards joining the other 34 members in the organisation.

FURTHER READING:

INDIA QUARTERLY: Why India should not join

ANALYSIS: How India’s increased OECD cooperation will increase taxpayer scrutiny

India bargains on future of intangibles

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