Foreign investors have much to cheer

Foreign investors will have very little to complain about the direct tax proposals in this year’s Budget.

Finance Minister Arun Jaitley has gone the extra mile to woo foreign investors, seeking to provide tax relief in several areas, including minimum alternate tax (MAT) and clarificatory changes to ‘indirect transfers’ of shares abroad (Vodafone-like situations).

The icing on the cake for foreign investors is Jaitley’s announcement to defer the implementation of general anti-avoidance rules (GAAR) by two years, say economy watchers.

Against the earlier proposed implementation date of April 1, 2015 (assessment year 2016-17), GAAR provisions will come into effect from April 1, 2017 (assessment year 2018-19).

Jaitley has also brought some explanations in the law to clarify on the meaning of “substantial interest” under the indirect transfer provisions (Vodafone-like situations where shares with underlying Indian assets are transferred abroad between non-residents).

Budget has also proposed that foreign investors will not be subjected to MAT on the gains earned from transactions in securities.

Sameer Gupta, Tax Leader – Financial Services at EY, said there were recently inquiries by the Indian revenue authorities in the course of scrutiny audits on the applicability of MAT to income of foreign portfolio investors.

Milind Kothari, Managing Partner and Head of Direct Taxes at BDO India LLP, said the Budget will go long way in improving foreign investors’ confidence on the Indian tax system. “Tax clarity — a key challenge to attracting foreign investments into India — has been put to rest and sorted out,” he told BusinessLine . On deferment of GAAR, Rajesh H Gandhi, Partner, Deloitte, Haskins & Sells, said the Finance Minister has “grandfathered” all investments to be made up to April 1, 2017, from GAAR, which is a “pleasant surprise”. “Deferment of GAAR by two years will be cheered by foreign portfolio investors’ community”, Gandhi said.

Ketan Dalal, Senior Partner, PwC India, said deferral on GAAR, addressing issues on Real Estate Investment Trusts and indirect transfers are all quite encouraging.

Vikram Hosangady, Head of Deal Advisory and Private Equity, KPMG India, said the Budget has several initiatives which should make it easier to do business, especially for foreign investors, including private equity funds.

Clarity on tax relating to REITS and what constitutes permanent establishment are, he said, small measures that will go a long way in reaffirming the Government’s intent to listen to investors and be ready to make changes to regulations.

Clarity on GAAR in terms of being prospective and effective 2017 is very comforting to investors, he added.

Haigreve Khaitan of Khaitan & Co described the Budget as “positive and well thought-out” with a long-term vision in mind. It has removed some key concerns such as GAAR, taxation of indirect transfer of assets and MAT. Moreover, the move to lower corporate tax rates while curbing exemptions is a welcome measure.

Khaitan & Co’s Daksha Baxi said the Budget has rightly recognised the need to give four-year roadmap to enable businesses to do their long-term planning, which is evident from 5 per cent reduction in corporate tax to 25 per cent over the next four years.

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