Take the pledge to vote

For a better tommorow#AajSawaroApnaKal
  • I agree to receive emails from News18

  • I promise to vote in this year's elections no matter what the odds are.
  • Please check above checkbox.

    SUBMIT

Thank you for
taking the pledge

Vote responsibly as each vote counts
and makes a diffrence

Disclaimer:

Issued in public interest by HDFC Life. HDFC Life Insurance Company Limited (Formerly HDFC Standard Life Insurance Company Limited) (“HDFC Life”). CIN: L65110MH2000PLC128245, IRDAI Reg. No. 101 . The name/letters "HDFC" in the name/logo of the company belongs to Housing Development Finance Corporation Limited ("HDFC Limited") and is used by HDFC Life under an agreement entered into with HDFC Limited. ARN EU/04/19/13618
LIVE TV DownloadNews18 App
News18 English
News18 » Business
2-min read

Tax Rise for High Earners May Trigger Fund Flight, Warns Ex-RBI Governor

Finance Minister Nirmala Sitharaman, in her budget this month, raised taxes on people earning more than 10 million rupees ($145,000) a year to at least 42.7%.

Reuters

Updated:July 29, 2019, 8:50 PM IST
facebookTwitterskypewhatsapp
Tax Rise for High Earners May Trigger Fund Flight, Warns Ex-RBI Governor
Bimal Jalan, the 77-year-old ex-bureaucrat, poses for a picture after an interview with Reuters in New Delhi, India, January 7, 2019. REUTERS/Adnan Abidi/File Photo
Loading...

New Delhi: A former Reserve Bank of India (RBI) governor, Bimal Jalan, has warned that the higher income taxes the government introduced in its budget could lead to a flight of funds from the country.

"In theory if tax rates are very high, obviously people look for other countries, which have lower interest rates, and also exemptions from income tax," said Jalan, 77, who chairing a central bank panel deciding on how much of the RBI's reserves should be transferred to the government.

Finance Minister Nirmala Sitharaman, in her budget this month, raised taxes on people earning more than 10 million rupees ($145,000) a year to at least 42.7%. That included foreign portfolio investors registered as trusts.

Analysts and traders say this has been a major reason for foreign investors being net sellers of more than 30 billion rupees of funds from Indian equity markets in July, after they invested more than 100 billion rupees in June.

That has helped to send India's BSE index tumbling more than 4% to 37,686.37 since July 1.

Parliament passed the budget last week.

Indians with taxable income of more than 1 million rupees a year now pay 30% of their earnings as income tax plus an additional 4% on the amount of taxes paid.

According to the new budget, people and trusts earning more than 5 million rupees a year will pay an additional 10% surcharge and 15% for those earning more than 10 million rupees.

"The incentive to borrow or invest domestically is certainly impacted by higher taxes. So investors may be sending money overseas, but hopefully it does not lead to round tripping," Jalan told Reuters in an interview on Sunday, referring to funds exiting only to come back, and evading taxes along the way.

India is among the top 10 countries with the highest corporate tax rate, even after Sitharaman lowered it to 25% from 30% for those companies that have annual sales of less than 4 billion rupees.

Some economists say that high corporate taxes are one of the reasons for slack private investment that has dragged India's economic growth to a five-year low.

On a much-debated plan to issue overseas sovereign bonds, Jalan said he thought it would be relatively risk-free, provided the government sold securities with 15 years and more to maturity.

"I don’t think foreign sovereign bonds make us more vulnerable. Our foreign exchange reserves are good, the current account deficit is low and inflation is low ... It has to be long-term borrowing and not short-term borrowing," said Jalan, who was RBI governor between 1997-2003.

The proposal had been criticised by other former RBI governors Raghuram Rajan and Y Venugopal Reddy, and by some allies of the ruling Bharatiya Janata Party, who argue it could create long-term economic risks by exposing the government's liabilities to currency fluctuations.

Get the best of News18 delivered to your inbox - subscribe to News18 Daybreak. Follow News18.com on Twitter, Instagram, Facebook, TikTok and on YouTube, and stay in the know with what's happening in the world around you – in real time.

Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months. Use code FREEDOM.

Read full article
Loading...
Next Story
Next Story

Also Watch

facebookTwitterskypewhatsapp
Most Active
Company Price Change %Gain
Yes Bank 59.25 5.24
Indiabulls Hsg 467.85 3.84
Reliance 1,275.85 2.33
HDFC Bank 2,162.70 -0.52
ICICI Bank 395.40 -0.93
Company Price Change %Gain
Yes Bank 59.25 5.24
ICICI Bank 395.75 -0.85
Indiabulls Hsg 467.90 4.00
Bajaj Finance 3,175.35 1.85
Reliance 1,275.95 2.36
Top Gainers
Company Price Change %Gain
Zee Entertain 351.15 6.75
Vedanta 137.40 6.47
UPL 547.25 5.64
Yes Bank 59.25 5.24
BPCL 329.35 5.22
Company Price Change %Gain
Vedanta 137.50 6.55
Yes Bank 59.25 5.24
ONGC 122.30 4.66
M&M 533.10 4.09
Coal India 188.05 4.07
Top Losers
Company Price Change %Gain
IndusInd Bank 1,310.50 -1.88
ITC 236.10 -1.65
ICICI Bank 395.40 -0.93
Eicher Motors 15,383.45 -0.90
HUL 1,860.00 -0.65
Company Price Change %Gain
IndusInd Bank 1,310.35 -1.90
ITC 236.00 -1.71
ICICI Bank 395.75 -0.85
Power Grid Corp 201.40 -0.69
HUL 1,859.35 -0.69

Live TV

Loading...
Countdown To Elections Results
To Assembly Elections 2018 Results