India Tax System Criticism: Founder Plans Exit
An entrepreneur in Bengaluru has begun a debate online about India’s taxes and compliance system. He established the Aflog group, and plans to leave India in 2026. It is due to what he sees as a defective system that places excessive pressure on ethical, law abiding businesses.
Shroff’s comments, which he shared on LinkedIn last week, have quickly gained traction. They have become a trending news today surrounding entrepreneurship, taxation, and the overall business climate of India.
Settled Rs.4 Crore but still Continues to be Doubtful
As mentioned in Shroff’s post, during the last 12-18 months through his various enterprises he has paid over Rs.4 crore in taxes. It included GST and income tax. He states that all his businesses are compliant with laws but that they continue to be audited by tax authorities.
For the last 12-18 months, through my various enterprises, I’ve paid the Indian Government more than Rs.4 crore in GST and income taxes to a country. It is inherently suspicious of its most compliant contributors. Why are there so many legally compliant businesses viewed as potential criminals instead of being viewed as dependable contributors to the economy?
Continued Oversight Over a Small Number of Taxpayers
An entrepreneur has raised a significant concern. Of the total number of taxpayers in India, less than 5% pay direct income taxes. Yet, those few taxpayers experience the highest proportion of audits, notices, and inquiries. The entrepreneur stated that audits, notices, and inquiries are not isolated events. But part of an ongoing, complex process.
The entrepreneur reported that state GST officials and national income tax authorities work collaboratively to create a resource-intensive compliance cycle that is perpetually active. Each month, businesses are required to submit GST returns. Quarterly, businesses are required to submit TDS payments to the government. Also, annually, businesses must file income tax returns. In addition to these obligations, businesses must also be prepared to answer inquiries at any time.
Lack of Genuine Incentive to Comply
The entrepreneur stated that complying with regulations does not provide any meaningful benefit in return for compliance. According to the entrepreneur, “Taxpayers who are truthful are not recognised or rewarded.”
The entrepreneur explained that, in many cases, taxpayers spend more time and resources disputing notifications or challenging the system than they would have if they had simply complied with the notification and gone ahead with their business activities. This has resulted in many entrepreneurs choosing to refrain from speaking out against injustice. Even when they are emotionally and financially drained.
The entrepreneur believes that this has created an environment in which innovation and long-term investing by entrepreneurs working to grow their businesses in a sustainable manner is difficult to achieve.
Creating Businesses Will Not Survive in Current Systems, Due to Majority Fragmentation
According to Shroff, the tax structure of the system is based on the political majority of people. Not on the small minority (the “creators”) who build companies (in this case, the formal business structure) and reliably pay taxes.
“The tax structure is oriented to gain confidence from the majority. It is not about helping the minority who build sustainable companies and pay their taxes regularly,” Shroff commented. He adds that business owners who regularly pay taxes have virtually no political influence. This leaves them vulnerable to excessive compliance burdens without significant reforms.
Reasons Why Founders Are Considering Their Future Growth Outside of India
Shroff further explored the reasons why many Indian entrepreneurs have successfully built businesses internationally. He suggests that the challenges of local entrepreneurship are not a lack of talent in India. Rather a lack of supportive foreign institutions that enable and reward the entrepreneurial spirit, rather than penalizing it.
“I have completed my journey of creating and building in India,” he said and expressed that he will be moving to another country to build his next business within the next three years.
Shroff is clear that his decision is based on the realities of current business conditions, rather than any lack of patriotism. He also believes that genuine business conditions will be unattainable for some time, regardless of the government’s stated direction towards improving business conditions through policy changes.
A Broader Discussion for India’s Startup Environment
Shroff’s remarks have struck a chord with numerous entrepreneurs who experience similar grievances. As discussions around taxation, compliance, and economic reform continue, his decision adds fuel to an ongoing debate about whether India’s business environment truly supports its most compliant contributors.
