Legal & Regulatory
Government Targets Formation of Committee to Streamline Exports
On March 7, Commerce and Industry Minister Nirmala Sitharaman announced government plans to form a committee for the purpose of simplifying India’s export procedures.
Speaking at the Dun & Bradstreet awards, Sitharaman said that the committee would also help boost India’s outward shipments. “We are planning to form a committee which will meet every six months to tackle the issues relating to exporters”, she said. “Apart from others, this committee will have members from the exporting community too and will ensure how problems being faced by exporters can be addressed effectively”.
The committee will form part of the government’s broader “Make in India” campaign, which aims to increase business confidence in India and transform the country into a manufacturing hub. Sitharaman emphasized that, if Make in India is to be successful, India’s export volumes will have to increase.
By Chris Devonshire-Ellis, Tarun Manik and Nishant Dixit
Dezan Shira & Associates
Although lacking the “big bang” that was speculated before its release, India’s budget for FY 2015-16 creates important opportunities for foreign investors through small but meaningful reforms. The budget was announced on 28th February, 2015, by India’s Finance Minister Arun Jaitley. It proposes a number of foreign investment and tax reforms with important consequences for investors including lower compliance costs, increased certainty in the tax regime, and an improved business environment.
The budget proposals seek to improve India’s business and investment environments by improving ease of doing business in the country. In February, the government launched an e-biz portal which integrates 14 regulatory permissions at one source. The finance minister said in the budget speech that he intends to appoint an expert committee to prepare a draft legislation which will expedite regulatory permissions.
New Indian ‘Black Money’ Standards
In his budget speech on January 28, Finance Minister Arun Jaitley announced legislation aimed squarely at curbing India’s ‘black money’ problem. If approved, penalties will be harsher in India than in many other countries.
Retaining undisclosed income abroad and evading tax on foreign assets could lead to imprisonment for up to ten years. The penalty for concealing income or assets will be levied at 300 percent of tax and offenders will not be permitted to approach the Settlement Commission.
Income from undisclosed foreign assets will also be taxed at the maximum margin rate of 30 percent with no exemptions or deductions. Regardless of taxable income, it will be mandatory for the owners and beneficiaries of foreign assets to file tax returns. This is aimed at preventing benami transactions abroad; a form of money laundering in India where properties are bought by a second party in order to hide the real beneficiary.
By Dezan Shira & Associates
Under Indian law, foreign investors are able to establish wholly owned subsidiary companies (WOS) in the form of private limited companies if they operate in sectors that permit 100 percent foreign direct investment (FDI). With India’s recent loosening of FDI caps, companies are now also able to establish WOS in the telecom services and asset reconstruction sectors. Establishing a private limited company can be a lengthy and complicated process involving multiple steps.
By Shilpa Goel
Business Advisory Associate, Dezan Shira & Associates
India’s decision to negotiate bilateral advance pricing agreements (APAs) with the U.S. is a welcome move. Prospectively, negotiations will increase certainty and uniformity in the application of India’s transfer pricing laws to related-party transactions carried out by U.S. multinational corporations (MNCs). In this article, we discuss some of the important caveats that MNCs must watch out for in complying with India’s nascent APAs.
Introduced in 2012, India’s APA regime provides for a framework to determine, in advance, the arm’s length pricing of an international transaction. If concluded as expected, APAs will bring about a reduced compliance cost to companies due primarily to elimination of transfer pricing selection and audit and a decreased burden of maintaining transfer pricing documentation. Businesses must, however, proceed with the APA application process with due care and diligence, especially on the following three fronts.
Government to Rank States on Ease of Doing Business
The Indian government is set to begin ranking states on the ease of doing business. The initiative will encourage state relaxation of dated legislation and establish a means for the federal government to identify poor performers.
The states will be ranked on the basis of: setting up and exiting business, registration of property, labor compliance, infrastructure availability, finance and tax issues and inspection reforms.
The move is in line with the Modi government’s competitive federalism’ agenda and will facilitative favorable reform for foreign investors.
Center Plans Tax Exemptions for Startups
The Indian government is devising an incentive scheme for startups which proposes exemptions from service tax and excise duties.
If passed, certified startups registered under the department of science and technology (DST) will be eligible for tax exemptions until their revenues reach a certain threshold. In addition, certified startups will receive grants of up to US$1.6 million (Rs 10 crore) from the DST.
The reform push is good news for investors looking to join India’s expanding tech and startup industry. Last year venture capitalists nearly doubled their investment in the country, injecting a record breaking US$2.1 billion into Indian startups.
India’s Medical Devices Regulations Set to Change in 2015
India’s health ministry has released a proposed draft of the Drugs and Cosmetics (Amendment) Bill. Set to be submitted to parliament for approval later this year, the new legislation would align India’s regulations with the European Medical Device Directives.
In addition to updated definitions, the new legislation would simplify import procedures and affect change across many areas including: manufacturing, sales, distribution and clinical trial of medical devices. Furthermore, a Medical Devices Technical Advisory Board would be established to manage any technical and administrative issues that may arise.
The draft has been publicly disclosed for comment by stakeholders from industry, government, and the general public.