"If you can't do it,
give up!"
— Sigmund Freud (Austrian,
1956-1939)
Word for the day
Snuggery (n)
A comfortable or cozy room.
Malice towards none
The Uttrakhand misadventure
of BJP will be forgotten soon.
But the price Congress would
need to pay to Mayawati, may continue to reflect on UP elections.
First random thought this morning
Historically all developed markets have grown exploiting 3Ms of
underdeveloped economies - Money, Materials and Manpower. What has made the difference
are the other 3Ms, viz., Military power, Management and Marketing skills.
Logically therefore, a developing economy which is aiming to join
the ranks of developed economy needs to develop the later 3Ms and reverse the
flow of first set of 3Ms.
None in the BRICs seems to fit the jacket so far.
Accounting is never a real problem
Since Tuesday evening, I've got numerous calls from the readers,
worried about the impact of the reported amendment in the Indo-Mauritian double
tax avoidance treaty. Regardless of the market reaction in near term, I believe
that most of the fears are unfounded and mostly stem from piecemeal thinking.
Firstly, from what I hear, I find that people believe that with
the proposed changes, all the other things will remain the same. Which
fortunately will not certainly be the case. Secondly, this amendment in the
treaty is not a standalone event. It must be seen as just another measure in
the series of globally coordinated efforts to make global financial system and
cross border investments more stable and transparent, in the wake of the global
financial crisis in 2008-09.
We have already seen changes in Swiss secrecy norms; deeper
information sharing on tax evasion and money laundering; stringent norms for
black money; and proposal to implement GAAR. This amendment therefore must be
seen as a "reform" measure, that market is always craving for.
Coming specifically to this particular event, it is important to
understand the implications, direct & indirect.
The proposed amendment "enables" the government to tax
capital gains arising from sale of moveable assets in the hands of the entities
resident in Mauritius. So far these entities could only be taxed only in
Mauritius.
In this context, the following must be noted:
(i) The amendment, if
ratified by the parliament and duly notified, shall apply only to the assets
acquired after March 2017. All assets acquired prior to that shall continue to
be treated as per the extant provisions.
(ii) Long term capital
gains (holding period 12 months for listed equities and 24 months for unlisted
equities) in India are taxed at zero rate. Hence, the amendment will have
virtually no impact on FDI, which is normally long term investment.
(iii) Short term capital
gains is taxed @ 15% in India. Assets acquired by genuine Mauritius residents
post 31 March 2017 will attract this tax, subject to 50% tax rebate in two year
period of FY18 and FY19. The key is that you pay tax only if you make
"Profit" in short term.
This amendment thus removes the long pending anomaly of
differential tax treatment of domestic and foreign investors. This measure may
also discourage short term hot money flowing into domestic market and causing
avoidable volatility. Moreover, it must be understood that FPI investment is no
charity. FPIs invest if they see prospects of making profits, not to save
taxes. So, our markets will continue to get flows if they offer relatively
better tax adjusted returns to the investors.
I do not believe that likely accounting problem for P-Note holders
is a valid argument against this amendment. I believe that proposal of
disclosure of ultimate beneficiaries' details mandatorily was getting
implemented in next 3yrs, and GAAR would have overridden this treaty anyways.
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