India, Hong Kong SAR sign tax deal to boost investment

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A Double Taxation Avoidance Agreement (DTAA) was signed by India and the Hong Kong Special Administrative Region (SAR) on Monday, a deal seen as a vital building block towards increasing investment between the both sides.

Gautam Bambawale, the ambassador of India to China, joined the SAR’s Financial Secretary Paul Chan Mo-po in signing the DTAA. A statement by the Indian Embassy said the agreement would “stimulate the flow of investment, technology and personnel from India to Hong Kong Special Administrative Region and vice versa.”

The statement further explained that the deal would prevent double taxation as well as “fiscal evasion” on income taxes. The DTAA will also allow for greater “exchange of information between the two contracting parties.”

Indian Prime Minister Narendra Modi is looking to boost foreign investment in India, after a slowdown in economic growth in 2017. /VCG Photo

More than 1,500 Indian companies have a presence in Hong Kong and will benefit from the DTAA, with greater clarity over tax set to boost investor confidence on both sides.

India and Hong Kong have long been partners when it comes to trade – in 2015 Hong Kong was India’s third largest export market, while India was Hong Kong’s fourth largest destination for exports.

Policies like "Make in India" will aim to boost exports and business ties with partners overseas. However, India is only ranked 100th in the world in terms of ease of doing business. /VCG Photo

Trade was worth 23.7 billion US dollars in 2015, according to the Indian Consulate General in the SAR.

However, foreign direct investment (FDI) has struggled to match those levels. Hong Kong invested only 1.21 billion US dollars in India between 2000 and 2015, just over 0.05 percent of India's total FDI during that period.

In a document published last year on bilateral relations between both sides by India’s Ministry of External Affairs, explicit reference was made to the lack of a DTAA as a cause for the low levels of FDI.

Following the signing of the DTAA, Abhishek Goenka of PwC said “Hong Kong is an important financial and trading partner [of India] and the absence of a treaty was a hindrance.”