Prashant Jha
Kathmandu: November 28, 2011

India and Nepal have signed a revised Double Taxation Avoidance Agreement (DTAA), with the aim of encouraging Indian investment in Nepal, preventing fiscal evasion, and easing procedures for stakeholders with commercial interests in both countries. The treaty, based on modern taxation principles and in line with the ‘current international environment’, will replace the older agreement on double taxation avoidance signed in 1987.

Finance Minister Pranab Mukherjee, who arrived in Nepal’s capital on Sunday morning, signed the pact with his counterpart, Barshaman Pun “Ananta”, in the presence of Prime Minister Baburam Bhattarai.

Mukherjee told reporters, “The revised DTAA will provide tax stability to the residents of India and Nepal and facilitate mutual economic cooperation as well as stimulate the flow of investment, technology and services between India and Nepal.”

The DTAA includes provisions for “exchange of information, assistance in collection of taxes between tax authorities and anti-abuse provisions”. The exchange of information will extend to exchanging bank details, and could be shared with other law enforcement agencies “with the consent of the information supplying country”.

The agreement has been welcomed by the private sector.

Sujeev Shakya, head of BEED, a consultancy and financial advisories firm, told The Hindu, “This is positive and was required as India is our biggest business partner. It will pave way for greater investment, transparency, and allow both countries to avail of each other’s comparative advantages.”

He explained that since tax rates were lower in Nepal, investors who had paid taxes in India would not have to do so in Nepal and those who paid taxes in Nepal would only have to pay the differential amount back in India.

The pact comes soon after the two countries signed the Bilateral Investment Promotion and Protection Agreement during Bhattarai’s visit to India last month.

Nepal hopes that the two agreements together would encourage further Indian investment in Nepal, which in turn would lead to greater exports and help bridge the growing trade deficit with India. India accounts for more than 45 per cent of foreign direct investment in Nepal, while two-thirds of Nepal’s trade is with India.

Political meetings

In the course of his day-long visit, Mukherjee called on President Ram Baran Yadav, and Prime Minister Baburam Bhattarai. He also met Maoist chairman Pushpa Kamal Dahal “Prachanda”, Nepali Congress president Sushil Koirala and senior leader Sher Bahadur Deuba, and leaders of Communist Party of Nepal (Unified Marxist-Leninist) and the Madhesi Front.

Sources said that Mukherjee enquired about the current political situation, peace process and Constitution drafting process in the light of the upcoming expiry of the Constituent Assembly’s term on November 30. Nepali leaders briefed him about the recent seven-point peace agreement, ongoing process of categorisation of Maoist combatants, formation of a State Restructuring Commission, and plans to extend the CA by another six months.

Mukherjee said India welcomed the 7-point agreement, and had an abiding interest in “the success of Nepal’s transition to multi-party democracy and the completion of the peace process”. He added, “India is committed to assist the Government and people of Nepal in these processes of historic change in Nepal.”

(Photo: Union Finance Minister Pranab Mukherjee and Nepalese Prime Minister Baburam Bhattarai pose for the media during a meeting in Kathmandu on Sunday.)

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