Dec. 9 – The Federation of Indian Chambers of Commerce and Industry has suggested that transactions in respect of Indian assets of foreign companies are to be excluded from capital gains tax.
In submissions to Revenue Secretary P.V. Bhide on Tuesday, the FICCI president, Harsh Pati Singhania, suggested that certain transactions of foreign companies in respect of Indian assets should not be regarded as “transfer” for the purpose of capital gains.
The transactions under discussion are:
- The amalgamation of a foreign subsidiary with foreign parent company
- The transfer by a foreign parent company to a wholly-owned foreign subsidiary
- Transfer by a wholly-owned foreign subsidiary to its foreign parent company
The FICCI has also asked that the minimum alternative tax be reduced from 15 percent to 10 percent and has proposed a reintroduction of the investment allowance. “New investments are not happening despite profits going up. In such a scenario, the Government should re-introduce investment allowance to help propel new investments,” said Mr. Singhania, The Hindu Business Line reported.
Concerning personal income tax, the FICCI asked that the peak rate to be applicable only over an income of Rs1 million (US$22,222). The effective income tax rate in India for income over US$100,000 is one of the highest globally at 31.5 percent compared with 9.3 percent in Singapore and 19 percent in Pakistan.
The FICCI asked the government to continue the stimulus packages till at least six months into the next financial year. “We are conscious of the fiscal deficit and we support the government’s stance in making sure it is brought down,” the FICCI president said. “But if the concessions and stimulus packages are pulled back, the problem will be that the improvements seen in the economy over the last two quarters may disappear. Investments haven’t yet grounded in and if we see a few more successive quarters of growth, then it would be the right time to draw back the stimulus.”
The FICCI is one of the most influential business organizations in India and wields considerable political clout. A composition of numerous chambers of commerce in India, it was formed in 1927 on the advice of Mahatma Gandhi and is based in New Delhi.
The issue concerning the exclusion of foreign assets from capital gains tax however is not all that is seems. Much of India’s foreign direct investment is in fact domestic money round tripping via offshore havens such as Mauritius to enjoy preferential profits and dividends treatment, much as Hong Kong provided a route for round tripping into mainland China when domestic companies were taxed at a higher rate than Hong Kong companies in China, a loophole that was only closed three years ago.