Nishith Desai is an international lawyer and tax consultant and I recently caught up with him to find out about tax, law and strategy in India. This is a two-part interview. In Part-1 he talks about his entertainment law practice (clients include Amitabh Bachchan, Disney, Shekar Kapoor and others) and about Venture Capital in India. Specifically, he talks about the Mauritius route that many Venture Capital firms have used to do business in India.
In Part-2 we talk about venture capital and the various mechanisms and structures through which capital comes into India. What are the challenges of bringing capital into India? What are the various pass-through mechanisms that are available? Nishith set up one of the first trust-based pass-through mechanisms in India between AIG and IF&FS. What does he think of the 2007 budget and Finance Minister Chidambaram’s provisions for VC and investment and pass-through mechanisms in India? We also asked Nishith if there is a bubble in India — you’ll have to tune in to find out what Nishith thinks about that.
Thanks Deepak and Karthik for your thoughts and comments. I am always looking to see what others have to say and learn from them.
I am just starting to learn about the tax structure in India and the goal of these interviews is to try and understand the legal landscape of India and how to do business there.
Feel free to share to send me emails or questions offline.
Thanks,
kamla
Hi,
Kamla: Interesting interview. I am a big fan of your podcasts.
Deepak:
Just some small clarifications:
“It was being misused to do PE investing and evade tax” -Tax evasion is a strong term!PE investors use offshore entities to “avoid” double taxation which is legitimate and fairly rational. The move to tax SEBI registered VCs is a retrograde step.(personal opinion)
“The real tax is about 20%” – Are you talking about corporate tax or individual tax? I don’t know what exactly you mean by “real tax” but if it is the “effective tax rate”. It might apply to only specific cases and cannot be generalized.
The nominal increase that we saw in tax rates was more politics than economics. Over a period of time, I think we would evolve a coherent tax policy rather than one based on knee-jerk reactions. Evolution takes time, especially considering our history.
I personally feel taxation in India is cumbersome and has a long way to before we can match up to global standards. But if you look at the past 20 odd years we have done exceptionally well to reach here.
Cheers
Karthik
Some of my thoughts.
The tax part of the conversation I do not entirely agree with. India is one of the lowest net tax countries – where the real tax is about 20% post all the exemptions etc. The passthrough status for VC funds was discussed in VW and it seems it was being misused to do PE investing and evade tax – not entirely in India’s benefit. Tax is less of a pain in India than the US in my view. In fact the entire brouhaha is about not paying tax, which I’m not really happy about – in the sense, why should investors have a problem paying tax on capital gains?
Nishith says taxes were reduced in the UK, China and Singapore – while I agree taxes should be lower (who doesn’t) but I’m not sure this will fly when you have behemoths like Infy and TCS not paying their fair due. I’d be happier to have lesser exemptions and lower tax rates…even Chidambaram has mentioned this.
I must say I agree that having clear and unambiguous tax laws is a far better thing for us. But that reduces drastically lawyer income; and our FM Is a lawyer (why else would lawyers pay no service tax?)
Interesting where he talks about “private rulings” – “Because the laws are administered not so well and the ambiguities around we went for a private ruling, [what are called] specialised or advanced ruling in India. When high stake game is involved, you don’t want more clarity.” How many such “ambiguous” rules have been sorted off under the table? Can we use RTI to get at them?