International Tax Conference on "International Taxation: A Paradigm Shift"
November 19-20, 2007, New Delhi

Welcome Address Dr Amit Mitra, Secretary General, FICCI

Ladies and Gentlemen

I take great pleasure in extending a very warm welcome to Dr Parthasarthi Shome, Advisor to the Finance Minister who has very graciously accepted our invitation to be the Chief Guest at today's Conference. I also welcome our friends from overseas, who have travelled all the way to share their thoughts and practices prevalent in their respective countries with us.

This is the seventh episode of FICCI's annual International Tax Conference. I would like to thank our associates OECD and IBFD for their support and co-operation.

Since the launch of our economic reforms in 1991, India's economy has rapidly globalised and we are getting increasingly integrated with the global economy. Our import tariffs measured in terms of customs collection rates have come down from 47 per cent in 1991 to less than 10 per cent now.

The improving macro-economic fundamentals, increasingly skilled labour force and greater global integration have gone a long way in enhancing India's competitiveness. We are emerging as the fastest growing economy in the world next only to China.

We have increasingly liberalized our FDI norms and today we are ranked as one of the most competitive destinations for FDI in the world. As a result the shares of both trade and FDI in GDP are rising. This year we are expecting our total foreign trade turnover to exceed US$ 350 billion and targetting FDI inflows at US$ 30 billion.

The result of liberalisation of Indian economy is quite evident and we are observing more and more foreign companies entering India as well as growing number of Indian companies setting up operations abroad. We are witnessing a number of successful joint ventures both in India and abroad.

It is against this backdrop, we have chosen the theme of this Conference as "International Taxation: A Paradigm Shift." We will need to reorient our tax policies to facilitate this "shift" and make it easier both for foreigners doing business in India and for Indians doing business abroad. The tax system must remove irritants in our inbound and outbound investments.

We in FICCI are of the view that our tax laws and procedures must be in tune with other countries of the world, especially those with whom we are endeavouring to align. In order to create a sense of certainty and credibility in our tax laws, it is equally important to have a Long Term Fiscal Policy designed with simplicity, stability, equity, efficiency, neutrality, flexibility, progressivity, acceptability and revenue elasticity.

In this context, I would like to take this opportunity to make a few observations for your kind consideration:

One: A number of Indian companies have established subsidiaries worldwide. These companies, however, do not bring into India their dividends or capital gains from the sale thereof, as that is taxable in the hands of Indian holding companies at the normal rates, of course, subject to the credit of tax paid by them overseas, which at times is lesser particularly in tax heaven countries. With a view to encouraging them to repatriate their earnings into India, the receipt of dividend and capital gains should be tax exempt or at least taxed on a concessional basis in India.

Two: Under the provisions of section 195, any sum payable to a non-resident and chargeable to tax, is subject to a withholding tax by the payer. Though, the deductor or recipient can apply for a lower / nil rate, delays occur in the issuance of such certificates. It would be in fitness of things to provide an option to the deductor to remit 80% of the amount sought to be remitted and to furnish a certificate from the bank for holding 20% of the balance amount as 'good for payment' towards the tax liability, which may be paid later to the extent ultimately determined payable.

Three: Under the existing provisions, a person is eligible for tax credit paid outside India in respect of doubly taxed income, equivalent to the tax at the Indian rate of tax or the rate of tax of the said country, which ever is lower. In all fairness there should be a consolidation of tax liability and in case the tax paid to the foreign country on income from outside sources is more than what it would be payable in India, the assessee should be eligible for tax credit deduction in respect of the excess part of the tax liability as well, as is in vogue in many other countries.

Four: In today's competitive environment many countries including Netherlands, Singapore, Luxembourg, Ireland, Spain, Austria have redesigned their taxation laws, to have low tax preferred jurisdiction with a view to attracting outbound investments. This is what we normally call 'participation exemption'. At a time when we are restructuring our fiscal Statutes and enacting altogether new Income Tax law, we in FICCI, feel it would be appropriate to introduce the said concept of 'participation exemption' on the lines of provisions prevalent in other countries. If need be, we would be too happy to have a detailed study conducted in this behalf and present to you and the Hon'ble Finance Minister for consideration.

Five: Dividend Distribution Tax (DDT) needs to be brought within the ambit of DTAA to enable the overseas holding companies, having their subsidiaries in India, to offset the distribution taxes paid in India from tax payable by them in their respective countries. It is equally important to reduce the rate of Dividend Distribution Tax to a reasonable level of, say, 7.5% or 10%.

Six: The present provision which requires the taxpayer to take the arithmetic mean of prices may be modified to use other statistical methods such as median of prices. Our law should be flexible enough to adapt with the emerging developments in the Group's business, taking into consideration the enterprise's perception of the risks of adverse tax assessment, as also considering both planning opportunities and risk management and weighing effective tax rate optimization against fiscal authority challenges and the cost compliance. Further, the provisions with regard to penalties need a relook.

Seven: The issue of ESOPs has assumed added significance in the recent past particularly for the IT and knowledge based industries. We have to ensure that FBT on ESOPs is eligible for tax credits under the DTAA and overseas stock exchanges are recognized on selective basis at par with our recognized stock exchanges for ESOPs valuation purposes.

Eight: Last but not the least, the move towards GST is welcome and would go a long way to improve the competitiveness of Indian Industry by eliminating the cascading effect of taxes on production cost, simplify the tax structure and reduce the cost of tax administration as also the compliance cost. On behalf of FICCI, we would urge upon you to ensure that GST is in place within the assured time-frame i.e. by 2010. The combined impact of all indirect taxes on prices of manufactured goods should not be more than 20 per cent inclusive of Central and State VAT.

Sir, these are some of the issues I wanted to raise. Experts gathered over here would have many more to deliberate over the next two days. We shall submit the main recommendations of this Conference to the Finance Ministry, and I am sure the Ministry will support our desire to make India one of the most competitive and attractive destination for foreign investment.

Thank you.