Indian Minister In Tokyo Expects Withholding Tax Breakthrough

by Mary Swire, Tax-News.com, Hong Kong

04 September 2001

Indian Parliamentary Affairs, Information and Technology Minister Pramod Mahajan said yesterday after arriving in Tokyo for a key meeting with Japanese counterpart Heizo Takenaka that he believes the contentious issue of withholding taxes on Japanese imports of Indian software will be solved before long.

"I'm sure that in this discussion, or by the end of the year when the Indian prime minister will visit Japan, this issue will definitely be settled", said Mahajan, who as communications minister is also scheduled to pay a visit Tuesday to Economy, Trade and Industry Minister Takeo Hiranuma.

Mr Mahajan gave his opinion after speaking to the Japan Chamber of Commerce and Industry. A questioner, Isamu Nitta, an adviser to Toshiba Corp, had said that the withholding tax is inhibiting Japanese imports of Indian software. Under the current double tax treaty between the two countries royalties for intellectual property are charged at 20%.

Out of total Indian software exports worth $6.2bn in the last year, only 4% go to Japan, while 64% go to the United States and 24% per cent to Europe.

Mr Hahajan pointed out how ridiculous it was that Japan bought considerable quantities of software from the US at prices several times higher than would have been paid if it had been bought from India, where much of it was written in the first place. Japan's strength in hardware manufacturing and India's software technology are complementary, he said, adding that China, another hardware-oriented country eager to join hands with India, will be a competitor for Japan.

Indian Prime Minister Atal Behari Vajpayee is expected to make an official visit to Japan in mid-December, following the cancellation of his scheduled visit in February due to the devastating 26 January earthquake in western India. Japanese-Indian business relations, centred on IT, have developed recently, particularly since former Japanese Prime Minister Yoshiro Mori visited the country in August last year, Japanese business people said.

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