One after the other after the other he's screwing up the economy. Exports are down, debt is up and now FI will come under under attack, and nobody really believes his growth figures. Don't worry boys Ghar Wapsi can make up for this!
Foreign Investors Raise Alarm Over Indian Tax Surprise Worth Billions: Report
India has been asked by US and European investor groups to urgently clarify its tax regime for foreigners, following surprise attempts by tax inspectors to collect money they say is owed on years of previously untaxed gains.
International funds and banks could face a bill of as much as $8 billion or Rs 50,000 crore ($1=Rs 62.5), said tax experts, just as many foreign investors are poised to pour money into India based on Prime Minister Narendra Modi's pledge to create a more business-friendly environment.
"This development has caught everyone by surprise and is extremely worrying for foreign investors," said Patrick Pang, a managing director at the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong. "It suggests that the Indian government can come out at any time and re-clarify what was believed to be an established tax policy on foreign investments."
ASIFMA is one of several business groups to have raised the alarm over attempts by the Indian tax department to levy Minimum Alternative Tax (MAT) on foreign investors' profits, according to sources and letters seen by Reuters.
In many jurisdictions, governments use a form of MAT to ensure that tax breaks don't pull domestic companies' effective tax rate below a minimum threshold. Foreigners without local operations are not typically covered by such provisions.
In India, foreign investors have hitherto paid 15 per cent on short-term listed equity gains, 5 per cent on gains from bonds, and nothing on long-term gains, but from late last year, many firms received notices from tax inspectors requiring them to pay MAT, potentially bringing overall tax on these gains to as much as 20 per cent.
Finance Minister Arun Jaitley intervened via the 2015 budget bill to state that capital gains made by foreign investors as of April 2015 were exempt from MAT, but that did not resolve the issue.
"The government's clarification in February, though right in intent, has created unwanted confusion, and the view the tax office is taking is that, by implication, the past years' gains can be subject to MAT," said Keyur Shah, a partner in the India tax practice at EY.
A senior official from the tax department who declined to be identified confirmed that the tax office believed the exemption from MAT does not apply retroactively.
"There is nothing (in the budget) to suggest that it (the exemption) would apply to old cases," this person told Reuters.
In recent weeks, many foreign investors have duly received notices requesting their MAT calculations for financial year 2011-2012. The tax office has said it would also apply the tax to previous years.
Tax inspectors could go back seven years, according to Indian law, and could also charge interest and penalties.
Investors say the change is at odds with PM Modi's desire to welcome investment, since it could hit private equity and venture capital transactions, not just portfolio investors
