The two South Asian neighbours sign DTAA to encourage trade, economic cooperation
Nepal can attract more Indian investment as the revised Double Taxation Avoidance Agreement (DTAA) signed today has provided tax relaxation to Indian investors and traders in India once they pay tax in Nepal.
"It will provide tax stability, facilitated mutual economic cooperation and stimulated flow of investment, technology and services between the two South Asian neighbours," said finance minister Barsha Man Pun after signing the agreement with his Indian counterpart Pranab Mukherjee, who flew to Kathmandu today morning to sign the pact.
The revised agreement — that replaces the old one signed in 1987 — has also lowered the threshold of tax rates on dividends and interest to reflect Nepal’s wish to attract more foreign direct investment (FDI).
An Indian investor, who has more than 10 per cent investment in Nepal, can take home more benefit as one is liable to pay only five per cent tax on dividends. Similarly, the old accord that was according to UN provision had 15 per cent tax on interest but the revised one has brought it down to 10 per cent.
"It will help in boosting overall business and investment climate," he said, adding that Nepali and Indian authorities can also share information on banking and tax evasion according to new agreement.
The revised DTAA that incorporated provision of exchange of information on banking and tax evasion according to the provisions of Organisation for Economic Cooperation and Development (OECD) will facilitate effective tax collection and controlling of fiscal evasion.
Though, it was planned to sign along with Bilateral Investment Promotion and Protection Agreement (BIPPA) during Prime Minister Baburam Bhattarai’s India visit in October, the accord could not be signed due to some technical reason, said Mukherjee.
"BIPPA and DTAA will provide necessary help to expand trade and investments between the two neighbours," he said, adding that the meeting between the commerce secretaries of both the countries in December will identify new areas of cooperation, projects and funding."The mechanism will strengthen and deepen our bilateral relations, and we would be in a position to move forward and expand our trade and other economic activities," the Indian finance minister added.
India is the biggest source of foreign investments and also largest trading partner of Nepal. Indian firms are the biggest investors accounting for about 47.5 per cent of total approved foreign direct investments of the country.
The tax relaxation in DTAA will help Nepal attract more investment from India, said finance secretary Krishna Hari Baskota.
The FDI flows into the countries where the environment is FDI-friendly, has skilled labour, uninterrupted power supply and easy link to market. "Nepal is trying to create conducive environment for the FDI inflow as more investment will result into more employment and production pulling the inflation down," he added.
The negotiation for the revision of DTAA has started when the current Prime Minister Dr Baburam Bhattarai was finance minister back in 2008.