Tax Deductions and FDI in India and Bangladesh

Qualitative Interviews
Respondent 1: Government official from India
Q.1 Are special tax deductions available for the companies who bring in significant amount of foreign
currency within the country?
A: Yes, India has a framework of double taxation relief in special cases, especially for the non-
resident companies who bring foreign currency as well as considerable businesses and economic
growth in the country. India has developed a highly comprehensive tax treaty network with almost
all the eminent economies across the world and the companies of the countries, falling under these
treaties enjoy relief from double taxation and also are protected by the government of the country
from any kind of discretionary taxation. If the foreign companies are venturing in public good and
welfare sectors like education, power, transport, health or infrastructural development, then also
special subsidies and tax exemptions are applicable as per circumstances. However, the companies
need to obtain permission and fill up Form No. 10F to get these tax reliefs. Investors are also
generally free to wind up and leave the market after proper procedures. There are lucrative
ownership rights in many sectors for the foreign companies and investors.
Q.2 Are the various tax deductions given by the country yield significant bearing in attracting the
Foreign Direct Investment?
A: The FDI volume in India has been consistently increasing over the years. As per my knowledge the
FDI volume has increased to nearly $62 billion in 2017-2018, compared to approximately $60 billion
in the previous economic year. India also ranks ninth among the top countries receiving FDI in the
recent period. Some of this increase can be attributed to the deductions and attractive taxation
regime and tax havens in the country. However, there are also other factors like the industrial
growth, huge market, cheap productive resource and labor, which attract FDI with higher weightage
in the country.
Q.3 What is the status of the red tape in the tax compliances within the country?
Yes, there remain issues regarding the same. Although the current government has been trying to
attract investors and foreign companies in the country, through their “Make in India” regime,
however, if you try to see the ease of doing business in the country, India still ranks 130th out of 190th
in the most recent survey done by the World Bank. This is because there remain red tapes in many
aspects of taxations and government regulations, especially in the manufacturing sector and much
of the innovations and production in the country are dependent on the approval of the government
and the judicial systems.
Q.4 Do you think that the complexities in the tax structure of the country can significantly affect the
FDI that is brought into the country?
This is a difficult question to answer. Till now, in spite of the presence of several bottlenecks and tax
complexities, India has managed to pull huge volumes of FDI due to its huge and lucrative markets as
well as cheap and educated labor force. However, in the competitive world, with more developing
countries coming in and attracting foreign investors, India does need to emphasis on rectifying its tax
structures and eradicate the bottleneck to maintain its position.