Indian firms spend 11.43% of their export earnings on managing compliance, customs, tax, and foreign regulations

US President Donald Trump’s unpredictable tariff actions may be the most discussed headache for Indian exporters to the US, but they are far from being the only challenge that could undermine their business prospects in that country.  

Beyond tariffs, Indian exporters to the US face a host of less visible challenges. Costs associated with customs procedures, varying regulatory interpretations and compliance requirements can potentially cost, on average, more than a tenth of their export revenues, cautions US based Avalara, an agentic tax and compliance firm that serves more than 43,000 businesses and government entities across over 75 countries.

The company, which has an extensive library of tax content and deep industry expertise to automate every stage of the compliance process, from tax calculation and return filing to exemption certificate management, says on average Indian firms spend 11.43% of their export earnings on managing compliance, customs, tax, and foreign regulations in developed country jurisdictions, especially the US.

“With something like 13,000 tax jurisdictions, the US is probably one of the most complex export destinations for exporters. There were 417,000 tax changes (federal, state, and local tax code changes and administrative rulings) in the last year alone in the US. No exporter can track it manually. I could be an exporter sitting in India assuming that I've just done an export and I've sold it but I might have hit a transaction threshold, in some jurisdictions by volume, in some other, by value. And I may have to file a return (to comply with the regulation)”, says Dulles Krishnan, GM, India Operations, Avalara. “In some places you need to register your business. For example in Texas if you go and do a trade show and you are soliciting business there, that can trigger a requirement for compliance, requirement for registering business. Compliance requirements start with logistics and shipping, including the correct classification of products under HS codes and applicable duties. And it varies with the jurisdiction where the product is sold”.

According to Krishnan, the biggest issue facing Indian exporters is lack of awareness. “Many businesses do not realise these compliance requirements exist until they receive regulatory notices. The consequences of this vary depending on the size of the business, nature of non compliance and its duration. A company that has been selling in the US or European market for five years without complying could face greater exposure than a business that has just entered the market and figure this out in the first year itself”, he explains.

Avalara estimates that by shifting away from manual tracking, exporters can safeguard their profit margin and eliminate the regulatory uncertainty that has forced 39% of businesses to delay international expansion.

As India signs more free trade agreements (FTAs) with its trading partners, tariff barriers may give way to zero tariffs, but compliance costs if ignored, can easily neutralise the tariff benefits.

Indian exporters tapping multiple foreign markets at the same time carry an even bigger risk. “If I'm exporting to 20 different countries and 20 different countries have different mandates you don't want to have 20 systems to do invoicing”, Krishnan says.