Examine the case for liberalizing the tax regime for expatriates. How would it help with India’s goal of becoming a global financial hub?

With FDI inflows reaching an all-time high of $83.5 billion in FY22, India has certainly become a desirable location for investment. However, as of 2022, none of the world’s top 50 Fortune 500 corporations has decided to establish their Asia-Pacific headquarters here. Singapore and China continue to be favoured destinations for multinational businesses.

Rationale behind liberalization of tax regime:

• India might gain by imitating the investor-friendly business climate of its Asian rivals as it sets its eyes on becoming a major financial centre for the world. 
• With their lenient income tax policies for foreigners, Singapore and China have established a global standard. 
• Foreign-sourced income in Singapore is no longer be taxed for residents, and Chinese expats will only be required to pay taxes on their worldwide income if they have been tax residents for six years in a row. 
• Foreign-domiciled persons in India, on the other hand, are subject to taxes on their worldwide income if they dwell in India for more than 182 days, as they are awarded OCI status after this period.
• The adoption of a liberal tax policy environment for expats was connected with a considerable rise in FDI inflows across all industries in both Singapore and China. Therefore, the reform in India’s tax policy will encourage foreign direct investment.
• Expats who are also looking for relief from double taxation are likely to make up the senior managerial staff of large multinational corporations. 
• Given that the exemption’s recipients don’t have Indian addresses, a sizable loss in tax income as a result of this policy change is unlikely.
• There are worries about lost tax income as a result of wealthy Indian nationals obtaining foreign citizenship in order to benefit from the tax exemption. The exception may be given to those with overseas addresses who haven’t been Indian citizens for a sizable amount of time in order to prevent such exploitation.

Way forward:

Significant and long-term foreign investment is more important than ever given India’s goal of having a $5 trillion economy by 2005.  For foreigners who intend to stay in India, a favourable tax policy framework and a strong business climate are urgently needed.