India grants relief from tax that worried foreign investors

[NEW DELHI] India has waived retrospective imposition of a minimum alternative tax (MAT) affecting foreign funds, the Finance Minister said on Tuesday, a move that could resolve a dispute that had shaken investor confidence.

Finance Minister Arun Jaitley said the government had accepted the recommendations of a panel set up to examine the issue, and said he would make the change permanent through legislation in the next parliament session.

"Confidence among investors could be a consequence of this," Mr Jaitley said.

Prime Minister Narendra Modi is trying to maintain India's image as a bright spot in the global economy following a series of political setbacks that have slowed his reform agenda.

Tax consultants Deloitte hailed Tuesday's decision, calling it a bold step considering the fact that it could cost the government revenue at a time when the finance ministry is trying to cut its fiscal deficit.

"The decision will also help to further the government's position that it discourages tax terrorism and welcomes foreign investment in India," said Rajesh Gandhi, a partner in Deloitte Haskins & Sells LLP.

India posted lower-than-expected economic growth of 7 per cent for the June quarter on Monday, adding to a growing sense of pessimism after opposition parties forced the government to drop legislation to make it easier for government and industry to acquire land for development.

Mr Jaitley told a news conference that pending the change in the income tax law, a notice would be circulated to tax officers ordering them not to issue any more claims under the levy known as MAT.

On Sept 29 India's top court is due to hear a legal challenge filed by Mauritius-based Castleton Investment Ltd against the government over a number of tax-related issues, including on whether MAT can be imposed on foreign investors.

It was not immediately clear if the hearing will still go ahead, given that the government's move on Tuesday would seem to take the wind out of the sails of investors' main complaint.

REUTERS