India’s tax raid on foreign investors

India's finance minister has announced plans to raise almost $6.5bn by retrospectively taxing foreign investors.

"India's government has set itself on a collision course with global fund managers," says James Crabtree in the Financial Times. Last week, the country's finance minister, Arun Jaitley, announced plans to raise almost $6.5bn by retrospectively taxing foreign investors on capital gains.

The legislation falls under India's minimum alternative tax (MAT), a form of corporate tax that has traditionally only been applied to domestic funds, but that the government now maintains should have been charged to international investors as well.

This adds to the confusion created by India's convoluted tax system: just two months ago, the government made it clear that foreign investors will definitely be exempt from the MAT with effect from 1 April 2015.

The move threatens to undo much of the goodwill that Narendra Modi's government has earned since coming to power last year, says Dhiraj Nayyar on bloombergview.com. Why it would do this is unclear. It may want to stick to the letter of the law, "even as it acknowledges those laws as counterproductive".

Perhaps the prospect of the added revenues is too great to resist or maybe it is "going out of its way" to show it's not too pro-business. "Whatever the reason, the outcome threatens to torpedo investor confidence."

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