Next month, the long arms of the Indian tax official promise to be fun traveling abroad. The plan to impose a 20% surcharge on foreign spending above $8,500 a year promises to be a computational nightmare for individuals and businesses, accountants and banks alike. It’s all very well to say that business expenses are exempt, but how about if you run a small export business and combine a visit to the Guangzhou Trade Fair with a short holiday in Hong Kong? There is now a proposal that card holders should make a declaration to their card issuers about the nature of their overseas expenses. Pity the banks who have to track and report this. What if someone splits spending across multiple cards, perhaps chasing frequent flier miles but seemingly inadvertently avoiding a tax audit? Certainly, in this age of algorithms that can mark large transactions and Digital India is reportedly a model for the rest of the G20, there is an easier way to go about it.
It is less than a decade since the then Finance Minister Pranab Mukherjee stunned the world by introducing the right to tax foreign mergers and acquisitions retrospectively in India, years after a deal was struck. Governments come and go, but unreasonable tax demands remain. A recurrent theme is New Delhi’s instability in the face of negative headlines. There may be a rollback or two, there may be clarifications and amendments, but the omnipotence of the Center remains intact.
Meanwhile, perceptions grow that it is a land of arbitrary action. A recent report by Henley & Partners, an advisory firm on investment-linked visas, pointed to “complicated, complicated regulations relating to outbound remittances” as a major reason why an estimated 6,500 high-net-worth individuals have been forced to leave the country in the past. Year left India. Peppermint There is an anecdote on Wednesday about a taxpayer who took him to the tax offices to explain euro payments to him, at least from his former employer. 2,000, received from an employee stock offer program of the MNC he worked for.
One could argue that it would be easy to differentiate between a business trip and a vacation when one files one’s taxes. But, this increases the complexity of tax filing and will increase the number of forms to be filled out and clarifications asked for by your friendly neighborhood bank. I signed a four-page form sent to me by HSBC last year, which declared, inter alia, that I was paying $120 a year. ft weekend Membership under the Liberalized Remittance Scheme (LRS) did not exceed the $250,000 annual limit. Last week, the payment through my credit card for my Microsoft Office subscription failed, due to unnecessarily intrusive rules from the Reserve Bank. I took a subscription from a New Zealand fitness company at an affordable price 800 a month in exchange for fabulous online classes ranging from Spin Bike to Pilates and Yoga, now gets paid for it from my eldest brother in the US. In accordance with new rules introduced this year to police endorsements by ‘influencers’, I disclose that I have no “material” interest in praising this unnamed firm.
For those who think these rules are only directed at the urban middle and upper middle class, the introduction of inventory limits for wheat stocks held by traders this month is proof that mindless controls are equal opportunity sores. The new rule came as food inflation eased and the Center claimed a major increase in domestic wheat production. Of course, farmers regularly face export restrictions when the prices of the goods they sell go up. They need to make hay while the sun shines, given that they are exposed to volatile weather and equally unpredictable global markets. Decades ago, Jagdish Bhagwati characterized the Indian government’s approach to regulation as the epitome of imagination by the people who run the system – not the people who are run by the system.
In the case of India’s new rules on spending abroad, if the subtext is the government’s concern that allowing $250,000 in remittances under the LRS is, well, a bit too lenient, why not just lower the limit? Yes, this also sounds illogical, given our vast reserves, more than $100 billion typically flows annually through inward remittances from our global diaspora and India’s dwindling current account deficit, but it is much more Seems practical.
The paranoia about outflows is overdue. For one thing, despite negative headlines about the exodus of the rich from India in the wake of the Henley Report, India lost only 1.9% of its dollar millionaires last year. Our IITs are creating millionaires faster than India is losing millionaires. Nandan Nilekani bequeathed nearly $40 million to IIT Bombay this week; We have no shortage of potential philanthropists, let alone millionaires.
The World Bank estimates that India will receive $111 billion in inward remittances from its booming professional diaspora in 2022, the highest in the world. I was surprised that under the LRS, $27 billion was sent or spent abroad by Indians in the last financial year, as reported in an article. Peppermint by Howindialives.com. About half was for travel, 12% for studies. However, some 15% moved out to support relatives abroad. Who are these unfortunate NRIs? The country needs to know. We are a long way from a 1991-style balance of payments crisis, thanks to our service exports and remittances from the diaspora, but in a permanently socialist country, good sense cannot always be counted on to prevail.
Rahul Jacob is a columnist for Mint and former foreign correspondent for the Financial Times.
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Updated: June 21, 2023, 10:58 PM IST