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Pact with Singapore will plug tax evasion

Pact with Singapore will plug tax evasion

SINGAPORE: It is heartening that India and Singapore have amended a double-tax avoidance agreement that will allow the Indian tax authorities to impose capital gains tax on investments routed through the island nation. This third in the line agreement— the first two were with Mauritius and Cyprus earlier in 2016 will plug possible misuse of benefits which was draining revenue that should have accrued to India. It was common knowledge that the round-tripping of funds into the country before the amended law came into force with the three countries in question was causing considerable amount of black money to find its way back into India. This is therefore a measure that would plug the loophole that allowed the entry of black money and is therefore a welcome move in the overall strategy to hit at the parallel economy.

During April 2000 to September 2016, Singapore had become a key source for foreign investors from across the globe to route funds into India. While Mauritius had been a conduit for long, Singapore emerged in this role only in the last few years. Mauritius accounted for as much as 33 per cent of inflows into India, Singapore was catching up fast, having reached up to 16 per cent. There may be a tendency for smart operators to explore other markets now with which India does not have double tax avoidance agreements and our tax authorities would need to be watchful in this regard. Under the amended treaty with Singapore, capital gains tax will be imposed at 50 per cent for two years, starting April 2017.

According to Finance Minister Arun Jaitley, beginning 2019, Switzerland will, under an agreement, begin sharing with India information on all accounts maintained in its banks post-2018. This should help in checking tax evasion through the foreign route. All in all, these are worthy steps but the proof of the pudding will indeed lie in its eating.