"Its final draft has been forwarded to the cabinet for approval," said Nava Raj Bhandari, deputy director general at Inland Revenue Department (IRD). The officials of two countries had concluded negotiations to this connection recently in Kathmandu.
The treaty needs to be ratified by the Parliament. Once that is done, it will supersede the similar agreement that the two countries signed in 1987, Bhandari told myrepublica.com, adding that the new treaty retains the facility pledged in the past. It also includes provisions that govern emerging businesses such as electronic transactions.
Going by the treaty, Indian investors in Nepal need not pay taxes back home on repatriation of income once they pay taxes in Nepal. Similar facility has also been provisioned for traders.
The new treaty, however, has strictly limited the double taxation avoidance facility to the Nepali and Indian business establishments only. The provision to this connection was loosely defined in the past. As a result, third country establishment in India and Nepal too were considered as beneficiaries of the facility.
This provision was tightened on request of India, said an official involved in the negotiation. He elaborated that India had mainly complained that similar loose provision in the treaty it signed with Mauritius caused it to lose substantial revenue.
Likewise, the new treaty accepts e-commerce and electronic transactions between the two countries and brings it into state scanner in a bid "to extend facility as well as to control leakages". It also incorporates measures to plug unwanted revenue leakages.
Treaty on Avoidance of Double Taxation is tagged as one of the important tools for luring foreign investments and promoting businesses. Nepal has signed it with 10 countries including Norway, Thailand, Sri Lanka, Mauritius, China, Qatar, South Korea, Austria and Pakistan.
Of them, Sri Lanka has also recently requested Nepal to revise the treaty, according to Bhandari. Likewise, Bangladesh and Denmark too have approached the government to sign similar bilateral treaty.
Related story
Experts discuss historic Nepal-Britain 1923 Treaty
