A new tax policy to be introduced by the Indian government next March to compel all persons holding Indian citizenship to pay tax on their worldwide income, has stirred debate among tax experts and authorities.
According to the new policy, Indian residents will have to declare their non Indian wealth to the Indian government even if they have not travelled to India for a long period of time.
This means that Indian nationals will be paying the difference between what they are supposed to pay in their country and a foreign country such as Malawi.
The tax policy has been posted on the website of Internal Revenue Service (IRS), which is the US government agency responsible for tax collection and tax law enforcement.
But tax expert Misheck Msiska, who is EY executive director for tax, in an interview on Monday, observed that the new move might have implications if the two nations do not discuss on the modalities of the same.
He said: “I am aware that India has been making a number of changes in regards to tax, but this goes beyond the two tax regimes [residence and source], because an Indian who lives in Malawi for more than 20 years, but is still holding an Indian passport and making money in Malawi cannot go untaxed.
“But now that the Indian government wants to tax these Indians as well, this might lead to double taxation and might complicate things.”
Malawi Revenue Authority (MRA) head of corporate affairs Steven Kapoloma said on Tuesday issues to do with expatriates are usually addressed using the Double Tax Agreement (DTA), which allows residents to claim relief where need be.
“In an event like this, we look at the two tax regimes in the countries concerned and if they differ, the DTA comes to play to avoid taxing those who are subjected to pay taxes in their country,” he said.
However,a representative for the Asian Business Nationals in Malawi, Mukbul Latif, said the move could not impact much on the Indian residents as tax in India is as equally high as Malawi.
“India has awakened now. Maybe it has realised that it has been missing out on taxes, but this can only make sense to pay the difference between the country where their citizen is working and India otherwise people cannot pay taxes twice,” he said.
India will not be the first to adopt this model. Elsewhere in the world, the US and a few other African countries levy tax on the worldwide income and estate returns on their citizens regardless of where they live.
Malawi uses the source tax regime, a type of tax regime which provides the opportunity to the country which generates income to have the right to tax it.