India's tax laws an impediment to foreign inflows: Karma Capital

Claiming that "India had lost face" globally due its taxation policy, Nandita Parker, Managing Partner of Karma Capital, attacked the amendment of the Mauritius agreement, saying it was an impediment to foreign investment.Parker told CNBC-TV18 in an interview that the lack of clarity with respect to p-notes and GAAR would be an overhang for the market going forward.Further, she added that the government should take action to remove operational difficulties in the taxation procedure and bring them in line with global standards.Below is the verbatim transcript of Nandita Parker’s interview with CNBC-TV18\\'s Anuj Singhal and Ekta Batra.Anuj: I am guessing that a lot of Foreign Institutional Investors (FIIs) would be nervous, but what is your call. We have seen intraday recovery for the market. Do you think this is something that the FIIs will have to take it in their stride and move on or do you think this will sour sentiment a bit going forward?A: Firstly what I would like to say is India\\'s tax policy and that is that India has lost face in global forums as a result of its taxation policy and when it comes to the subject of investing in India the stumbling block has been the taxation of foreign investors. If you look at other countries of the world the majority of them do not charge short term or long term capital gains on non-residential foreigners. So, countries like United States, UK, Germany, France, Canada, Taiwan, Hong Kong, Singapore, Indonesia, Malaysia, Israel, Mexico, Turkey, Russia has no capital gains tax. And when you talk is this an impediment yes, it absolutely is.So, what we are doing is we are underestimating the amount of capital flows that could come into India if these policies were not in place. If you look at the amount of capital flows that are currently coming in to India they are a fraction of what can be coming. Given that certain institutions, the US and non-US which are tax exempt for example and pension funds, charitable trust and institutions. These in any case are not taxed in their own countries. So, now what they are trying to say is that you should come into India and make an investment and that we are going to tax you. In fact in the global forums this is an issue which is constantly coming up. It is being highlighted and I am really surprised that no one in the finance ministry and the media is taking a notice.Ekta: How does life change for Participatory Notes (P-Notes)?A: Quite significantly and as the fact that General anti-avoidance rule (GAAR) comes into the picture next year as well it will make an impact. I am not sure how this may be over and over what time frame but clearly that is an overhang on the market going forward. So, at least when you talk about trading a market and levels and technicals today everything is fine but a year from now scenes are not going to be that rosy unless certain actions are taken care of and the government needs to step in and not only just clarify its policy but also possibly change them to bring India more in line with what is happening globally.Let me put it very clearly that global investors have lots of other options and other destinations. India at this point needs billions of dollars worth of capital to come in to build its infrastructure to fund its growth and that is going to happen with friendly taxation and not with ambiguity and saying, you know what we are going to tax you when other countries in the world are not doing it.There is one more point I would like to make obvious. If you look at domestic Indian mutual funds they seem to be getting a preferential tax treatment. They don\\'t pay short term capital gains tax. And my question is why don\\'t they? Why is the government willing to forgo that tax revenue for domestic mutual funds and not do the same thing for foreign mutual funds, that is another issue that I have.For full interview watch accompanying video