Lower withholding tax at 5% to catalyse Singapore investment

NEW DELHI: Companies in Singapore doing business in India will soon benefit from a review being undertaken of the existing Indo-Singapore tax treaty.
Re-negotiation of the withholding tax rates on dividends, interest, royalties and fees for technical services under the double-taxation avoidance agreement (DTAA) between the two countries will form part of the review.
The Singapore government has proposed lowering the withholding tax rates on these sources of income to a uniform 5% to encourage investment flows from Singapore to India.
Withholding tax refers to the tax deducted at source by the Indian revenue authorities on income accruing to residents of Singapore from dividends, interest, royalties and fees for technical services rendered here. The tax payer, in turn, is entitled to claim credit in Singapore on the taxes paid in India and vice versa.
Top revenue authorities of India and Singapore will hold the first round of negotiations in New Delhi on September 16-19. The review of the Indo-Singapore DTAA has been delinked from the on-going negotiations on the free trade agreement (i.e., the comprehensive bilateral cooperation agreement with Singapore).
Under the existing DTAA between India and Singapore, the withholding tax rate on dividends is 10% if the beneficial owner — i.e., the recipient — is a company which owns at least 25% of the shares of the company paying the dividend. In all other cases, the tax rate is 15%.
The withholding tax rate for royalties is 15% on copyrights and 10% for any industrial, commercial or scientific equipment. On interest income, the tax rate is 10% of the gross amount of interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company). In all other cases, the rate is 15%.
The outflows to Singapore — on interest, dividends, royalties and fees for technical services — stood at around Rs 460 crore in 2001. The inflows were, however, insignificant.
Any move to reduce rates would impact on the revenues, though the spin-off could be higher investment flows from Singapore to India. The issue of taxation of global income has, in fact, generated considerable debate in recent times. While global income is taxed in the resident state, the source state also wants a share of the pie.
The move to review the DTAA follows a recommendation made by Joint Study Group on the Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore in April 2003. The CECA had broadly said that India could consider lowering the existing withholding tax rates.