BLBG:India Defers Tax Avoidance Rule in Boost for Currency, Stocks
India deferred a plan to clamp down on tax avoidance by a year after the proposals stoked concern that foreign investment will decline and hurt growth in Asia’s third- largest economy.
The applicability of the so-called General Anti-Avoidance Rule, or GAAR, will be delayed until the fiscal year beginning April 2013, Finance Minister Pranab Mukherjee said in parliament today. The burden of proving tax evasion will shift from the taxpayer to the revenue department, and steps will be taken to ensure the rule is applied objectively, he said.
The rupee extended gains and Indian stocks erased losses after Mukherjee deferred the changes and cut capital gains tax for overseas investors. He originally announced the anti- avoidance measure, and a plan to ensure taxation of overseas deals in which an Indian asset is transferred, less than two months ago in the annual budget.
“This should be positive in the short term,” said Prasanna Ananthasubramanian, chief economist at Mumbai-based ICICI Securities Primary Dealership Ltd. “I expect capital flows should pick up because the India-related uncertainty has gone away.”
The rupee strengthened 1 percent to 52.96 per dollar as of 3:07 p.m. local time, while the BSE India Sensitive Index of stocks rose 0.5 percent. The currency weakened 16 percent last year, the worst performer in Asia. The yield on the most-traded 9.15 percent note due November 2024 fell four basis points, or 0.04 percentage point, to 8.656 percent as of 3:08 p.m. in Mumbai, according to the Reserve Bank of India’s trading system.
Capital Gains Tax
The long-term capital gains tax rate for non-resident investors and private equity firms is being reduced to 10 percent from 20 percent, Mukherjee said. Moves to clarify tax laws won’t override India’s double-taxation agreements and won’t be used to open cases where assessment orders have already been finalized, he said.
India is grappling with the fastest inflation and widest fiscal deficit among the largest emerging economies, as well as a record trade shortfall that’s pressured the rupee. Policy reversals, including the suspension of plans to allow overseas retailers such as Wal-Mart Stores Inc. to open supermarkets in India, have clouded the outlook for investment.
Standard & Poor’s lowered the nation’s sovereign credit outlook to negative from stable on April 25, citing weaker investment and a deterioration in the current account, the broadest measure of trade. The move took India a step closer to so-called junk status.
Governor Duvvuri Subbarao cut India’s repurchase rate by a greater-than-forecast half a percentage point on April 17 to 8 percent, seeking to bolster expansion with the first reduction since 2009. Inflation was 6.89 percent in March, the fastest in the BRIC group of major emerging markets that also includes Brazil, Russia and China.
India’s economy expanded 6.1 percent in the three months through December from a year earlier, the slowest pace in almost three years, as costlier credit and inflation hurt consumer spending and investment.
To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.
