India, Singapore DTAA amendment to modify capital gains tax exemption on cards

India, Singapore DTAA amendment to modify capital gains tax exemption on cards NEW DELHI: India and Singapore would hold key dialogue here on Thursday and Friday to conclude protocol to amend bilateral Double Taxation Avoidance Agreement or DTAA which will modify capital gains tax exemption.India-Singapore DTAA came into force in 1994 and, with two amending protocols

in 2005 and 2011, has been at the centre of focus because Singapore-based companies could take advantage of capital gains tax provision and avoid capital gains tax, since Singapore does not have capital gains tax.

It was linked to the DTAA with Mauritius and was clear that if the agreement with Mauritius was modified, the one with Singapore would also have to change, too.

Singapore’s Deputy Prime Minister and Coordinating Minister for Social and Economic Policies Tharman Shanmugaratnam will be here on 30-31 December. This will be his third visit to India this year. His last visit was to Delhi in August when he delivered the inaugural NITI Lecture Series on Transforming India.

Tharman is visiting India to hold discussions with Finance Minister Arun Jaitley to conclude the Protocol to amend the bilateral Double Taxation Avoidance Agreement (DTAA), which will modify the Capital Gains Tax exemption. As in the case of India's DTAA with Mauritius, to which the DTAA with Singapore was linked, the Capital Gains Tax exemption provision in the DTAA will be phased out within a defined time frame.

This is pursuant to discussions between Prime Minister Modi and Prime Minister Lee Hsien Loong of Singapore in October this year here. However, given the importance that India attaches to the growing and wide ranging Strategic Partnership with Singapore and the key place that Singapore occupies in India’s external economic engagement and the Act East Policy, Modi had suggested that a working group chaired by senior Ministers be designated from both sides to explore ways to further strengthen the strong economic ties and accelerate investment flows between India and Singapore.

Singapore is already the second largest source of FDI in India with cumulative FDI inflow amounting to USD 50.6 billion (April 2000-September 2016). It emerged as the largest source of FDI into India last year – FDI inflow was USD 13.7 billion in 2015-16. Singapore is among the top destinations for Indian investors as well who have put in more than USD 45 billion worth of investment in the country.

While the framework agreements between India and Singapore, such as the Comprehensive Economic Partnership Agreement and the DTAA, have contributed to the emergence of Singapore as the major source and destination of investments for India, it is also the result of the business environment in Singapore and its role as a a major financial, logistics and business centre in the region.

The change comes at a time of economic slowdown in Singapore, China and elsewhere; reversals in global sentiments on trade and economic integration; and, broader geopolitical uncertainties in the region and the world, all of which will have a strong impact on Singapore. Singapore is seeking deeper Indian economic and strategic engagement in the region; for India, Singapore is an important anchor of its Act East Policy. Singapore is also home to a large population of people of Indian origin and recent expatriates from India count among the top professionals in Singapore. Singapore has one of the highest concentration of IIM and IIT graduates worldwide. Indeed, a delegation of 20 IIM alumni from Singapore is participating in PDB 2017. This is an important resource for the two countries. The two sides will seek to work towards retaining and strengthening one of the main pillars of their Strategic Partnership.