Lowering of tax on foreign dividends positive: BMR Advisors

Finance Minister Pranab Mukherjee announced the Union Budget 2011-12 in Parliament today.

The rate of tax on dividends received by an Indian company from its foreign subsidiary has been lowered to 15% for improving flow of such funds into India. In an interview with CNBC-TV18, Mukesh Butani, Partner, BMR Advisors says, this is a good measure. "It will help Indian companies repatriate dividends back and still not be taxed at a full rate of taxes," he adds. Here is a verbatim transcript of the exclusive interview with Mukesh Butani on CNBC-TV18. Q: What have you made of the various incentives offered for taxes on foreign dividends, taxes on dividends announced to money held abroad and therefore not been repatriated. Now that the tax is excused, do you expect a lot of money to come in, will that be a capex injection? A: Tax is not being excused. You are looking at a reduced way of now taxing dividends that are reiterated by foreign subsidiaries of Indian companies. Part of it is a prelude to the Direct Taxes Code provision, which has a CFC legislation, which says that if you do not repatriate income into India you would be liable for taxes. So, this is a good measure. It will help Indian companies repatriate dividends back and still not be taxed at a full rate of taxes. The reduced withholding of 5% on bonds that are issued by foreign institutions, I think that is a good step. Most of the people were expecting that there would be a return of the old 1023G provision which would allow no withholding tax on long-term infrastructure financing. I am wondering why this 5% withholding is restricted only to the offshore financing and why only FIIs because there are many other ways of funding infrastructure from offshore other than FIIs. So, I don