SINGAPORE: India and Singapore on Friday amended a decade-old double tax avoidance agreement (DTAA) that will allow the tax department to impose capital gains (tax) on investments routed through the island nation and plug a possible misuse of benefits.
Earlier this year, the government managed to get Mauritius and Cyprus to amend tax treaties that allowed it to impose capital gains tax and check alleged round-tripping of funds into the country some of which was said to be black money.
“This year on May 10 we had amended DTAA with Mauritius. Then in September we amended with Cyprus and today we amended the DTAA with Singapore… With these three… we have successfully stopped round tripping through this route,” finance minister Arun Jaitley said at a press conference.
In recent years, Singapore had emerged as a key source for foreign investors from across the globe to route funds into the country and in some cases it was the top originator of investments. Between April 2000 and September 2016, Singapore accounted for 16% of inflows with Mauritius topping the list with 33% of flows.
The latest move by the government seeks to bring parity although there are agreements with countries such as the Netherlands, France and South Korea where some additional benefits are available. Tax experts, however, said with the general anti-avoidance treaty in place, misusing these treaties would be tough.
Under the amended treaty with Singapore, capital gains tax will be imposed at 50% for two years starting April 2017, Jaitley said.
The minister said the earlier DTAAs with the three countries gave complete exemption from payment of tax on profits made through capital gains as there was no such levy in the host countries. The beneficiary did not pay any capital gains tax in India. “Therefore there was a reasonable apprehension that these agreements were misused for round tripping and bringing money back in country through this route,” he said, adding that 2016 has been significant and historic in getting these amended.
Through the revision in the treaty, “we have given a reasonable burial to the black money rule that existed.”
