Kathmandu: India and Nepal on Sunday signed a revised Double Taxation Avoidance Agreement (DTAA), which will facilitate exchange of information on banking between the two countries and help prevent tax evasion.
The revised tax treaty was signed by India's Finance Minister Pranab Mukherjee and his Nepalese counterpart Barshaman Pun. It will replace an earlier agreement signed between the two countries in 1987.
On his arrival here, Mukherjee told reporters, "I am confident that this mechanism will strengthen and deepen our bilateral relations, and we would be in a position to move forward and expand our trade and other economic activities."
DTAA, which embodies modern trade principles, will enable Indian investors and traders to enjoy tax relaxation in India once they pay taxes in Nepal.
The agreement is also likely to boost confidence of investors and help Nepal attract more investment from India, experts said.
India is the biggest source of foreign investments in Nepal, as also its largest trading partner. However, Nepal accounts for only 0.44 percent of India's total trade.
The bilateral trade between the two nations has increased from USD 1.98 billion in 2009-10 to around USD 2.70 billion in 2010-11, registering an increase of 37 percent.
Indian firms are the biggest investors in Nepal accounting for about 47.5 percent of total approved foreign direct investments.
"The agreement reflects the international environment, which is prevalent today and the old agreement needs to be amended," Mukherjee said.
While addressing the media after signing the DTAA, Mukherjee said, "In the area of exchange of information, the revised DTAA prodides for internationally accepted standards including sharing of bank information and sharing of information without domestic tax interest.
Further, the information received can be shared with other law enforcement agencies with the consent of the information supplying country."
There are about 150 operating Indian ventures in Nepal engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries.
Till date India has signed DTAA with 82 countries and Tax Information Exchange Agreements (TIEAs) with 5 jurisdictions. It has concluded negotiations with 17 jurisdictions for signing of TIEA.
India had already signed a revised tax agreement with Switzerland. Under this pact, both the countries would share banking and tax-related information with each other.
In the wake of the black money issue, the DTAA is considered as one the tools to help arrest tax evasion.