Government cuts tax for foreign investors

p-chidambaramThe financial ministry has said that it is cutting a key tax rate affecting foreign investors in the country in a move aimed at attracting more foreign funds in order to be able to fund the wide current account deficit of the government.

Finance minister P Chidambaram said announced a cut in withholding tax from 20 per cent at present to 5 per cent for a period of two years for interest earned by foreign investors on government securities and rupee-denominated corporate bonds. Chidambaram believes that the move will help attract inflows of funds from foreign institutional investors and qualified foreign investors.

The finance minister has also issued a series of clarifications aimed at addressing concerns of various ministries, investors and non-residents. The government is also planning to further relax the norms for raising funds through the external commercial borrowing (ECB) in the country. The government is looking to relax borrowing norms for low-cost housing and infrastructure sectors like telecom and ports in the country to boost investment in the core sector. The move will allow Indian firms to borrow cheaper funds from abroad.

Officials from the union finance ministry and Reserve Bank of India (RBI) are expected to meet this week to consider relaxation of ECB norms for the core infrastructure sector in order boost streamline capital flows into the country. It will also help the government to control the widening current account deficit (CAD) in the financial year.

The Finance Bill 2013-14of the government has passed in the Lok Sabha following the explanations.