Niti Aayog Advocates for Presumptive Taxation Scheme to Attract Foreign Investors

The Niti Aayog has proposed a presumptive taxation scheme for foreign companies to enhance simplicity and certainty in taxation. This optional scheme aims to address disputes related to permanent establishment (PE) issues, streamline compliance, and safeguard revenue. The working paper highlights that this approach balances India's right to tax with the need for clarity for foreign investors.

The paper points out that despite India's strong FDI growth, unclear PE regulations create tax uncertainties, hindering investments. It suggests aligning domestic laws with global standards while avoiding retrospective changes. By adopting this scheme, India could improve its global business standing by transforming its tax regime into a more predictable system.

Focus on Taxpayer Relief

The presumptive taxation scheme offers relief by allowing companies to declare income at a set rate, eliminating the need for maintaining detailed accounts for audits. This reform aligns tax policy with broader economic goals. Different sectors would have varied deemed profit rates under this scheme, providing flexibility and certainty for foreign companies.

Foreign firms can choose this scheme for certainty or opt out if their actual profits are lower than the presumptive rate. The paper recommends that tax authorities should not litigate the existence of a PE separately, offering a safe harbour for businesses. Training tax officers to apply rules consistently, especially in complex digital and cross-border cases, is also advised.

Economic Growth and Investment

Niti Aayog CEO BVR Subrahmanyam emphasised the importance of a stable and predictable tax regime for investment and economic growth. He stated, "A Stable, certain, and predictable tax regime is critical for both investment and economic growth. Uncertainty is not good for investors or business." Subrahmanyam highlighted India's goal of becoming Viksit Bharat by 2047, which requires rapid growth and job creation through investment in a predictable business environment.

Subrahmanyam noted that under the Prime Minister's guidance, reforms are progressing across various economic sectors. These reforms aim to create a conducive environment for investment by ensuring stability and predictability in business operations.

With inputs from PTI