With the Government keen to attract more foreign investments, Finance Minister P. Chidambaram is expected to address the tax concerns of foreigners investing in India when he makes a presentation in the US on Friday.
“The Finance Minister is to make an important presentation in the US tomorrow. That should go a long way in addressing concerns that people have raised. The Commerce Minister and Deputy Chairman Planning Commission will also be there,” External Affairs Minister Salman Khurshid told Business Line .
The Government is keen to send out the message that India is still open for business. The Finance and Commerce Ministers are currently in the US to woo investments.
Salman Khurshid said certain “tax issues” were raised by the Norwegian sovereign wealth fund which is keen to invest in India. The fund, which is one of the richest in the world with a corpus of around $700 billion, is a government pension fund. “My take away from the meeting was that the fund is impressed with the growth rate and is looking at India very seriously. The fund’s CEO said they were already in touch with corporates here. There were some tax issues,” Khurshid said. Currently, the biggest concern of a foreign investor is the uncertainty of the taxation system. Though the Finance Ministry has managed to clear the air on General Anti-Avoidance Rules (GAAR) and lowered the rate of withholding tax, issues related to retrospective amendments to the Income-Tax Act are yet to be sorted out. Similarly, there are some apprehensions on tax related to Transfer Pricing.
Last month, leading global professional agency EY (formerly Ernst & Young), in its report ‘Private equity: breaking borders’, said that “a significant portion of the private equity (PE) funds raised for investments in India is currently pooled in offshore countries, such as Mauritius and Singapore. This can be attributed to the attractive tax and regulatory frameworks prevalent in those countries for fund raising by asset managers and the relative tax and regulatory hurdles/uncertainties in India for such pooling.”
It also suggested that if India needs to compete with global financial hubs, it is imperative for the Government to formulate a conducive foreign investment policy that gives foreign investors a sense of comfort while choosing India as a location for pooling such funds.
It listed three key recommendations for the tax. First, there should be pass-through system of taxation for India-domiciled Alternative Investment Funds. It also recommended that income derived by foreign investors in SEBI-registered AIFs should be exempt from tax besides simplification of the tax compliance mechanism for foreign investors.