Parthasarathi Shome panel to make final recommendations on FDI, overseas deals by September-end.

Parthasarathi Shome, the head of a committee set up to sort out a host of tax problems plaguing investors, has said foreigners would prefer to invest directly in India rather than route money through low-tax jurisdictions such as Mauritius if Asia's third-largest economy is able to create an environment in which foreign capital feels welcome.
"We will have little competition from that route now. People will see more holding companies coming to India directly. It would be more growth oriented. We need to put in enabling environment for the capital to come in," Shome, an international tax expert, said in an interview on Sunday. On Saturday, a committee headed by the former IMF economist recommended abolition of capital gains tax on listed securities, a move that experts would say would increase the incentive to invest directly in India.

Shome Report: A Game Changer

The report by Shome, who was chief economist, for the UK tax authorities (Her Majesty's Revenue and Customs) between 2008 and 2011, is already being hailed as a possible game-changer for the beleaguered the Congress-led UPA government, whose second term has been marred by a dramatic slump in investor confidence, which has seen growth plummeting to a nine-year low. Business leaders have been scathing in their criticism. On Friday, NR Narayana Murthy, the founder of Infosys, virtually accused the government of being hostile to business and referred to aggressive tax enforcement.

The report by Shome provides an opportunity for the government to change this narrative, widely referred to as policy paralysis. But in the interview with this paper, Shome, the winner of Brazil's highest civilian award for reforming the tax system of the Latin American country, insisted he had regarded the review of GAAR, the controversial tax avoidance rules, as a technical exercise.

"We looked at GAAR as a tax matter....There was no question of any pressure... Just as there was no pressure from government there was no pressure from stakeholders," he said in response to a question on whether the dramatic slump in investor sentiment was one of his concerns.

"India is not the only location for foreign investment. It also has to compete for capital internationally," said Shome, explaining the rationale behind the recommendation to remove tax on capital gains in listed securities. He added that implementation should not be postponed beyond the next budget. Long-term capital gains tax, shares held for more than a year, are already tax-free. Short-term capital gains attract 10% tax.

By the end of this month, the Shome-helmed panel will come up with final recommendations on so-called indirect transfers or overseas deals in which some or all of the underlying assets are Indian.


Source : economictimes.indiatimes.com