Foreign Investors need to pay taxes on the money earned: FM

The Dollar Business Bureau

India is now a force to be reckoned with and tax incentives are no longer needed to attract FDI into the country. Speaking to the media, the Finance Minister said foreign investors must pay taxes on the money they earn in India. The Government will no longer distribute tax incentive goodies, as India is a strong enough economy.

He sounded confident and said there was no serious apprehension of investors shifting their sights to other countries and there will be no depletion in FDI due to the recent developments in the redrawing of the India-Mauritius tax treaty.

Mauritius is the biggest foreign tax-source investment countries, that acts as a tax-conduit for foreign investment into India. And investors who channel their money into India gain lot of tax benefits. With the recent redrawing of tax treaty between India and Mauritius, India will levy capital gains tax on investments in shares that have been routed through Mauritius, beginning April 2017. This was signed with the recent amendment to the 34 year old tax treaty between the two countries. Reacting to the development the markets acted cautiously, as it would now become difficult for investors to use tax haven countries as mediators, to avoid levies. Replying to the same Jaitley said markets have to understand and operate on the inherent strength of the Indian economy.

Since India is now a strong economy, it could afford to impose taxes on foreign investors who have over the years made use of tax-haven countries like Mauritius. India opened up its economy to foreign investors in 1991. Countries like Mauritius helped investors as well as India, by channelling more than a third of the $278 billion of FDI, into the Indian shores. So in a way the Finance Minister was hinting that foreign investors have for long enjoyed the fruits of tax havens, and it is time they paid their share of taxes for those fruits. There was nothing to be alarmed about as the imposition of these taxes have been done in a phased manner to avoid confusion and shock he added.

The Minister of State for finance, Jayant Sinha said, “the treaty revision will bring in transparency on the Mauritius-based entities investing in India. It will help us dramatically in curbing round-tripping because there are two very important aspects to it. One, is the capital gains regime...that will be applicable at the same rate as you would get if you were a domestic resident tax payer in India. So there would be no advantage for anybody coming in through the Mauritius route after 2019. Number two, they will also be able to get a lot more transparency on Mauritius companies that will be investing in India through Information Exchange Protocol that we’ve also signed.”

The redrawn Mauritius treaty will have a ripple effect on the Singapore treaty too as both the countries accounted for $17 billion of the total $29.4 billion foreign investments that India received during April-Dec 2015.