Budget 2018: Corporate America urges Arun Jaitley to reduce tax uncertainty

USIBC said it believes India must ensure that transfer pricing principles are applied in a fair, consistent manner for all taxpayers

Ahead of the Union Budget, corporate America has urged Finance Minister Arun Jaitley for further reduction in tax uncertainty for multinational companies and institutional investors, a step which it said would help attract more foreign direct investments to India.

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

Noting that in today's economic environment, scarce capital is allocated to markets offering optimal returns, Biswal said global businesses allocate investments where post-tax returns for a given risk profile are highest.

When tax costs are uncertain, particularly in a foreign country, investors normally provide for them on a most conservative basis, she observed.

"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," said Biswal, who was the Obama administration's point person for South and Central Asia.

Welcoming Prime Minister Narendra Modi's plans to "transform" India's economy and his efforts to promote India as a global investment destination, the USIBC said for India to be successful in attracting the international investors, it needs to create a more stable and predictable fiscal regime and address retrospective taxation and legacy cases that remain open.

"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," said the memorandum running into 39 pages.

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