FOREIGN INVESTORS MAY EXIT IF FAVORABLE TAX TREATMENT DISAPPEARS
By Aaron Chaze
Foreign investors routing investments to India through Mauritius could potentially be taxed on their short-term gains, under a tax law amendment that was proposed in the recently announced government budget for 2012–13.
New microfinance bill could boost lending growth
Photo Credit: Paul Prescott / SHUTTERSTOCK.COM
The proposed General Anti-Avoidance Rule (GAAR) will come into effect retroactively from April 1, 2012, whenever the Finance Bill (budget proposal) is passed by Parliament. It will require investors to have a “substantial commercial presence” in Mauritius to be eligible for favorable tax treatment. Foreign investors put $9 billion in Indian equity markets in the first quarter of 2012, and, according to media reports around 80% to 90% of portfolio flows are routed through Mauritius. The eligibility of favorable tax treatment will be clarified after the passing of the budget, the government said.
Microfinance in India may soon operate under a new federal regulatory framework, as the government is planning to bring the Microfinance Institutions Bill 2012 to parliament during the current session. Under the bill, microfinance institutions will be required to register with the Reserve Bank of India and will be subject to detailed RBI oversight. This is a big change for the microfinance sector and could encourage lending growth and the development of new microfinance institutions. The sector saw lending decline dramatically after the southern state of Andhra Pradesh introduced the AP MFI Act in 2011. The act sought to end industry malpractices by MFIs but had a number of unintended consequences, effectively shutting the door to microfinance in the state and making it almost impossible for lenders to collect on debts. Regulatory oversight by the RBI will supersede this Act, creating a stable framework for MFIs to operate within and for investors to invest in.