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No tax sops for export of capital
August, 30th 2006
Domestic companies not to get concessions for equity investments abroad -------------------------------------------------------------------------------- End of the road Equity investments abroad on the rise Industry also sought sops on some expenses India negotiating DTAA with ASEAN -------------------------------------------------------------------------------- The Finance Ministry has virtually rejected domestic industry's demand for tax concessions to facilitate equity investments abroad. (A section of India Inc had demanded that tax concessions equivalent to 100 per cent or even 50 per cent of equity investments made abroad be available to the investing company under Income-Tax law.) Speaking at Assocham's third international tax conference, Dr Parthasarathi Shome, Advisor to the Union Finance Minister, said that he found no rationale in providing tax incentives to Indian companies for export of capital. He was responding to a question from a senior official of a South-based motorcycle manufacturer, which is putting up a unit in Indonesia and has already made equity investments in that country. "What you are suggesting is that Indian tax authorities should give tax concessions for export of capital. Can there be any rationale for that? "We also want to have capital. If Indian companies go abroad because of opportunities, we will encourage it. We are not stopping them. But why should Indian authorities give tax incentives so that capital could go abroad and be invested there? That does not make sense to me," Dr Shome said. He also said that Indian companies must find a place where there are incentives that would give a point of inflexion to them, meaning that it becomes more attractive to invest there rather than in India despite all the tax incentives offered by the authorities here. "We also want you to be seen abroad." "But we will not give you tax incentives to go there so that you can be seen abroad. That does not make sense." In recent years, corporate India's equity investments abroad have been on the rise. According to the Reserve Bank of India, total outward direct investments in 2004-05 stood at $1.4 billion against $0.7 billion in 2000-01. In support of its demand for tax incentives, industry said itwould have to wait for 3-5 years before it can get back the money (in the form of dividends) invested in the unit. Besides the demand for tax incentives, industry also suggested that certain expenses incurred abroad for setting up units should be allowed as deductible expenditure for the Indian entity. Meanwhile, Dr Shome also said that India was negotiating a double taxation avoidance agreement (DTAA) with Association of South-East Asian Nations. He added that India was increasingly entering into DTAAs with Asian countries. The country already has such agreements with Thailand and Sri Lanka. "As the tax administration gets harmonised, I think we will see some harmonisation in the tax administration of MNCs and large companies in the process."
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