Tax Rise For High Earners May Trigger Fund Flight, Says Ex-RBI Governor

Tax Rise For High Earners May Trigger Fund Flight, Says Ex-RBI Governor

"In theory if tax rates are very high, obviously people look for other countries," Mr Jalan said.

NEW DELHI: 

A former Reserve Bank of India (RBI) governor, Bimal Jalan, has warned that the higher income taxes the government introduced in its budget could lead to a flight of funds from the country.

"In theory if tax rates are very high, obviously people look for other countries, which have lower interest rates, and also exemptions from income tax," said Mr Jalan, 77, who chairing a central bank panel deciding on how much of the RBI's reserves should be transferred to the government.

Finance Minister Nirmala Sitharaman, in her budget this month, raised taxes on people earning more than Rs. 1 crore a year to at least 42.7 per cent. That included foreign portfolio investors registered as trusts.

Analysts and traders say this has been a major reason for foreign investors being net sellers of more than Rs. 3,000 crore of funds from Indian equity markets in July, after they invested more than Rs. 10,000 crore in June.

That has helped to send India's BSE index tumbling more than 4 per cent to 37,686.37 since July 1.

Parliament passed the budget last week.