Investors making money must pay taxes; no fear of FDI fall: FM

Investors must pay taxes on money they earn in India and a "tax-incentivised route" is no longer needed to attract foreign investments to a "strong enough" Indian economy, Finance Minister Arun Jaitley said today.
He said there was no "serious apprehension" of investors shifting base to other tax havens and he sees no depletion in FDI flows due to re-drawing of decades-old tax treaty with Mauritius -- the biggest source of foreign investments into India.
The amendment would also help check round-tripping of funds and boost the domestic consumption, Jaitley added.
After toiling for almost a decade to redraw the tax treaty with Mauritius, India will begin imposing capital gains tax on investments in shares through Mauritius April next onwards. This has been made possible with amendment to the 34-year old tax treaty between the two countries.

As markets reacted cautiously to India expanding its crackdown on tax treaties to make it harder for investors to use tax havens as a shelter to avoid levies, Jaitley told PTI, "Eventually, markets have to operate on inherent strength of (Indian) economy."
Stating that the original Mauritius treaty created "a tax-incentivised route" at a time when India was looking at foreign investments to boost economy, he said the economy has become strong enough and "now those who earn must pay taxes."

The original treaty, signed almost a decade before India opened up its economy in 1991, has helped channellise more than a third of the USD 278 billion (nearly Rs 19 lakh crore) foreign direct investment India received in the past 15 years.

The imposition of taxes has been "done in a phased manner to avoid shock and I don't expect any depletion to FDI because of this. Also eventually, markets have to operate on inherent strength of economy," he said.
Minister of State for Finance Jayant Sinha said the treaty revision will bring in lot of transparency about Mauritius-based entities investing in India.
"It will help us dramatically in curbing round-tripping because there are two very important aspects to it. One is the capital gains regime... That will be applicable at the same rate as you would get if you were a domestic resident tax payer in India. So there would be no advantage for anybody coming in through the Mauritius route after 2019.

During the meeting, members of Parliament was apprised of
the various measures undertaken by the government and Reserve Bank to deal with the problem of NPAs.
During the meeting, one member suggested that state governments may be allowed to take part in the auction of stressed assets.
Some members also said that since Asset Reconstruction Companies (ARCs) are in private sector and their performance is not up to the mark in many cases, therefore, close monitoring of their operations be done through stringent regulations especially in the wake of decision to allow 100 per cent FDI in the ARCs through automatic route.

Another member suggested that to improve the confidence of bank officials, the Gross NPA norm may be fixed in the range of 9-10 per cent as well as not counting the asset as NPA if it has been restructured.
Some members suggested that the government must go ahead to establish Public Sector Asset Rehabilitation Agency (PARA) and it should only consider those NPAs where sector specific reforms do not work.
Other suggestions given by the members included that a Special Bank may be created where NPAs of all the Public Sector Banks be transferred.
Young entrepreneurs who have taken soft loans from the banks but suffered due to slow down may be supported by the banks in order to revive their businesses.

It was also suggested by some members that there is a need to restore the confidence of the officers of the banks which have been off later adversely affected due to increasing NPAs.
The MPs recommended measures be taken to comfort these officials and to enable them to take commercially viable and rational decisions.
They suggested creating a Special Performance Vehicle (SPV) Committee outside the banking system to guide commercial decisions.
The Members of the Consultative Committee who participated in the today's meeting include Baijayanta Panda, Kailkesh Narayan Singh Deo, Udit Raj, Anil Desai, N Gokularishnan, Rajeev Chandrasekhar, Rajkumar Doot and Shri Sukendu Sekhar Roy.

Finace Secretary Ashok Lavasa, Economic Affairs Secretary Shaktikanta Das, Revenue Secretary Hasmukh Adhia, Financial Services Secretary Anjuly Chib Duggal, DIPAM Secretary Neeraj Gupta and Chief Economic Advisor Arvind Subramanian also attended the meeting.