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US Urges India To Improve Tax Regime

by Mary Swire,, Hong Kong

21 September 2015

The Indian Government must assure investors that it is committed to improving its legal framework, including the tax code, if it is to meet its economic objectives, a senior US State Department official has said.

Ahead of Indian Prime Minister Narendra Modi's visit to the US this week, Nisha Desai Biswal, Assistant Secretary, Bureau of South and Central Asian Affairs, said in remarks to the Peterson Institute for International Economics that "for India to achieve its goal of sustainable growth and development, it must assure global markets and international investors that it is open for business."

"Efforts to simplify its tax code and increase the ease of doing business will pay huge dividends for India's citizens and its global economic stature," she added.

It isn't the first time that the US Government has brought up the subject of uncertainties in the Indian tax regime. In 2012, then US Treasury Secretary Timothy Geithner raised concerns in a meeting with former Finance Minister Pranab Mukherjee about a retrospective tax amendment included in the 2012 Finance Bill that was enacted to bypass a Supreme Court ruling settling a long-running tax dispute between India and Vodafone in favor of the UK-based company.

This measure did much to damage trust between the Indian authorities and foreign investors, and Modi's Government has set about trying to repair these relations, notably by committing to settle hundreds of tax disputes that are pending before the courts. According to the nation's Revenue Secretary, Shaktikanta Das, India will soon settle cases with close to 120 American companies as well as entities from Japan and other countries. India has also announced that a Framework Agreement will be agreed under the mutual agreement procedure provision of the India-US tax treaty to resolve transfer pricing disputes with the US.

Nevertheless, Biswal acknowledged that while "some progress has been made," the process of improving India's legal framework will take time. "As anyone familiar with our own legislative process knows, sometimes getting big things done is more difficult in vibrant democracies," she observed.

TAGS: court | Finance | tax | business | India | law | corporation tax | transfer pricing | dividends | Japan

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