India Faces International Pressure To Abandon Tax Plans
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International trade groups, along with other foreign government officials, have advised the Indian government to reconsider their proposal to retroactively tax corporations for prior overseas deals, said a report by Reuters on Monday, as concerns grew over the overall investment confidence in Asia’s third largest economy.
International trade groups, along with other foreign government officials, have advised the Indian government to reconsider their proposal to retroactively tax corporations for prior overseas deals, said a report by Reuters on Monday, as concerns grew over the overall investment confidence in Asia’s third largest economy.
Several business groups, representing over 250,000 international companies, wrote to India’s prime minister Manmohan Singh last Thursday, warning him that such a move would hold back India’s economic growth.
[quote]”The sudden and unprecedented move (on tax) … has undermined confidence in the policies of the Government of India towards foreign investment and taxation and has called into question the very rule of law, due process, and fair treatment in India,” wrote the letter to Singh.[/quote]“This is now prompting a widespread reconsideration of the costs and benefits of investing in India,” the letter continued.
Some of the signatories of the letter included the U.S.-based Business Roundtable, the Confederation of British Industry, the Canadian Manufacturers & Exporters and the Japan Foreign Trade Council. Reuters estimates that the combined revenues of all the companies is more than $6 trillion.
Sluggish investment has been partly to blame for slowing economic growth in Asia’s third-largest economy, as foreign companies grow increasingly concerned over erratic policies adopted by the government.
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In January this year, London-based telecommunication company Vodafone finally won a five-year Supreme Court case against the India’s government attempt to tax the firm for a $10.7 billion takeover of Hong Kong-based Hutchinson Whampoa’s Indian unit in 2007.
But according to India’s finance minister Pranab Mukherjee, the government could seek to bypass the court ruling through its latest tax proposal, which indicates that the government can retroactively impose a capital gains on all merger and acquisition deals conducted overseas as long as the underlying asset is located in India.
On Monday, U.K. Chancellor George Osborne criticised the Indian government’s move and joined the trade groups in warning that the tax provisions could hurt trade between the two countries.
“We are concerned about the proposed budget measure, not just because of its impact on one company, Vodafone, but because we think it might damage the overall climate for investment in India,” said Osborne in an interview with the Financial Times.
The U.K. Chancellor added that he had spoken to the Indian finance minister in regards to the issue, and is hoping for a positive response in the future.
[quote]“We are not threatening any retaliatory actions,” said Osborne. “What India needs, like all countries, is a stable and predictable tax system to encourage investment and we have concerns that this budget proposal would not add that.”[/quote]
