The Hindu : Business : `Cost-benefit analysis of FDI must determine tax'

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Wednesday, Nov 15, 2006
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`Cost-benefit analysis of FDI must determine tax'

Special Correspondent

Shome wants wider tax base and higher revenues

NEW DELHI: With the competition for attracting foreign direct investment (FDI) hotting up in East Asia and Indian corporates going global in their acquisition spree, the Union Government is faced with the task of ensuring that a fair share of revenue comes to the Exchequer without overburdening the taxpayer. It is of the view that FDI for which tax incentives are being given should lead to widening of the tax base and fair revenues.

Making this observation at a two-day international tax conference on `Globalising economies: Challenges to tax system' organised by the Federation of Indian Chambers of Commerce and Industry here on Tuesday, Parthasarthi Shome, Advisor to the Finance Minister, said globalisation had led to increased opportunities for cross-border investment and implied unilateral scaling back of corporation tax rates across the globalised world.

On the issue of tax structure and FDI, Dr. Shome suggested a cost-benefit assessment, weighing the benefits of FDI such as host country tax revenue from increased capital stock and increased employment and costs such as revenue foregone from tax incentives.

Saroj Kumar Poddar, President, FICCI, called for modifying the tax system to remove the irritants on inbound and outbound investments to encourage Indian companies, which had established subsidiaries overseas, to repatriate their earnings into India. The receipt of dividend and capital gains by them should be tax exempt or at least taxed on a concessional basis in India. He said there was need to clarify that deals in such Indian assets would not be regarded as transfer for purposes of capital gains under Sec. 47 of the Income-tax Act.

Further "the scope of the Authority for Advance Ruling needs to be expanded to cover transactions undertaken or proposed to be undertaken by resident assesses to have advance knowledge of likely tax implication of transaction in cases of ambiguity and uncertainty, thereby to minimise wasteful and protracted litigations."

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