Fund managers are raising concerns over tax measures in India’s 2012 budget proposal that could negatively impact offshore private equity funds and discourage investment, according to media reports.
The measure under fire is the General Anti-Avoidance Rule (GAAR), which calls for adjustments to current tax policy on offshore transfers. If the GAAR becomes law, foreign funds could be subject to taxes when they sell a stake in Indian portfolio companies, the Economic Times reported.
The measure, which was introduced to control money laundering, gives tax authorities broad scope to go after any tax benefit that they believe is avoidance and not simply prudent tax planning.
Tax officers with little knowledge of private equity and of international treaties could choose the easier route and simply tax the funds, the report said.
“This has had a tsunamilike effect on the private equity industry,” Dhanpal Jhaveri, chief executive officer and partner of Everstone Capital Advisors, was quoted as saying in the report.
Mahendra Swarup, chariman of the Indian Venture Capital Association (IVCA), called for clarity on how tax authorities define tax avoidance.
“We will be meeting with the government next week to make our points over uncertainties caused by the budget proposal”, Swarup said in an interview.