Tax raids on Samsung gives a wrong message to investors: Must be avoided at all costs

At a time when foreign investors that include a host of South Korean companies are looking to increase investments in India, the raids carried out by the department of revenue intelligence (DRI) in Samsung's offices in Mumbai and Delhi have led to serious concerns.

Reports have suggested that the raids were carried out to investigate if there were violations of customs duties on networking equipment imports.

"Directorate of Revenue Intelligence (DRI) officials carried out 'searches' at offices of South Korean firm Samsung Electronics over suspected evasion of duty on import of network equipment, said people aware of the matter," the Economic Times reported.

However, the incident has led to concerns among investors.

Sources said that the incident could prove to be a dampener for companies that are looking to withdraw from China and invest in India. "Tax raids or searches must be undertaken only in extreme cases," two people closely associated with corporate sector said.

Prime Minister Narendra Modi and his team had largely won the confidence of the corporate sector as they promised not to resort to "tax terrorism."

"India must make itself conducive for investments and such raids and searches by the taxmen do no good to the image. Even if there are discrepancies, it must be understood whether or not they are intentional. To carry out such activities arbitrarily can cause damage to the investment climate," a corporate lawyer told India Narrative.

Amid changing geopolitical and geoeconomics contours, several other Asian countries including Vietnam have started offering huge incentives to companies wishing to set up factories. "In such a scenario, raids by the tax department must be undertaken only in cases which are absolutely unavoidable," a senior executive with a multinational company said.

Meanwhile just before leaving India after completing a three year term. South Korean ambassador Shin Bongkil said that the global pandemic had exposed the risk of overdependence on global supply chains being concentrated in one country. "Consequently, there are increasing calls for diversifying supply chains to be better prepared to tackle future disruptions caused by any global crisis. Global companies, including Korean companies, are looking at India as an alternative manufacturing destination," Shin said at a Korean investors' meet at Haryana Chief Minister Manohar Lal Khattar's residence in Chandigarh.

In 2018, Korea's investment to India crossed the $1 billion mark for the first time, touching $1.053 billion.

While India's overall rank improved significantly from 142 in 2014 to 63 in 2020, doing business in India still is still fraught with handicaps that need to be addressed jointly by the Centre and states.

Sources said that the Production Linked Incentive (PLI) Scheme is aimed at boosting manufacturing and investments in the country, but such activities from taxmen must be avoided "at all costs."