Update Of Indo-Japanese Tax Treaty To Boost India’s Software Exporters
A new tax treaty between India and Japan could boost exports of Indian software
threefold to $1.5 billion in the near term, the Indian press has reported.
A senior official revealed this week in an Economic Times report
that a review of the India-Japan tax treaty will take place next year, which
could have the result of eliminating withholding tax on the import of software
services to Japan. It is also hoped that the renegotiation of the tax treaty will help to iron
out disputes between Indian software firms and the Japanese authorities arising
from the latter’s interpretation of the current treaty rules. Currently, Japan classifies offshore income as a royalty and levies tax at
a rate of 20%. While India provides tax credits to offset taxation paid in foreign countries
by Indian firms, they are notoriously difficult to obtain and the authorities
only grant a credit in respect of the equivalent tax paid in India, leaving
many firms out of pocket. “Interpretation of the Indo-Japan tax treaty by the Japanese tax authorities
is a big challenge to the growing business in Japan. Thus, the intervention
of the Indian government in renegotiating the treaty is most welcome,”
TV Mohandas Pai, CFO at IT consulting firm Infosys told the Economic Times. .
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