Lauding PM Modi’s efforts to “transform” the country’s economy, USIBC said India needs to create a more stable fiscal regime to attract more global investors.

Ahead of Finance Minister Arun Jaitley’s last Union Budget before 2019 lok Sabha elections, corporate America – citing possibilities of better foreign direct investment to India – urged Jaitley to further reduce the tax uncertainty for multinational companies and institutional investors.

In a memorandum submitted to the Finance Minister, Nisha Desai Biswal, the president of the US-India Business Council (USIBC) said, “A significant positive step toward improving the investment climate would be to further reduce tax uncertainty for multinational companies and institutional investors in India.”

Stating that scarce capital is allocated to markets offering optimal returns, the USIBC president said global businesses allocate investments where post-tax returns for a given risk profile are highest.

Biswal – Obama administration’s point person for South and Central Asia – further said, “When tax costs are uncertain, particularly in a foreign country, investors normally provide for them on a most conservative basis.”

“Therefore, tax uncertainty results in an increase of risk when investing in any given project drives investors to either withhold investments or require a higher rate of return to account for this risk, thus raising the cost of capital in the uncertain market,” she added.

Also lauding Prime Minister Narendra Modi’s efforts to “transform” the country’s economy and promote India as a global investment destination, USIBC said India needs to create a more stable and predictable fiscal regime and taxation process to attract more global investors.

“USIBC members believe that unless resolved, the lack of clarity in the government’s approach to taxation risk will undermine progress in other areas of the economy and will continue to damage India’s reputation among investors,” mentioned the 39-pages memorandum.

Biswal further added that by rescinding the historical retrospective tax legislation, India would have an opportunity to proceed to a satisfactory resolution of legacy cases, which will help both India and the companies involved.

“To facilitate cross-border trade and investment without the barrier of double taxation, the Government of India and the US Government should reaffirm the shared commitment to improving tax dispute resolution,” mentioned the memorandum.