India is soon expected to sign a limited tax avoidance agreement with Hong Kong to exempt all air and shipping companies operating from the island country from being taxed here.
While the treaty will extend a similar benefit to Air-India and Indian shipping companies touching Hong Kong, India will actually be a loser from the proposed treaty.
This is because almost all shipping companies and airlines operating from the Chinese outpost are profitable concerns. As a result, they pay a tax on their operations in India.
But Air-India has a much lower profit margin and the same is the case with the domestic shipping companies. As a result, their tax liability is negligible in Hong Kong. So transferring their tax liability back to India will not add to the government's revenue kitty.
Government sources said the decision to sign the limited tax agreement was made under the assumption that the national carrier would soon become a profitable venture and it would be in the national interest to ensure that the consequent tax revenue should not flow abroad.
The proposal for the treaty was approved by former Finance Minister Yashwant Sinha. India has so far signed 10 such limited agreements, but these have been largely with countries that are not major trading centres.
The country has signed a comprehensive double taxation avoidance agreement with 65 countries till now. Such agreements are meant to provide protection against taxation of the same income in two countries.
The agreements besides providing a reasonable element of legal and fiscal certainty for carrying on international operations, stimulates the flow of trade, capital, technology and personnel.
© 2025