Analyzing the Impact of Taxation on Foreign Direct Investment in India: Implications for Policy
Keywords:
Foreign direct investment, taxation, corporate tax rates, tax complexity, tax incentives, stable tax regime.Abstract
Foreign direct investment (FDI) plays a crucial role in the economic growth and development of a country. India, being one of the fastest-growing economies in the world, has been attracting significant amounts of FDI in recent years. However, taxation policies in India have been a matter of concern for foreign investors. This study aims to analyze the impact of taxation on FDI in India. The study uses secondary data from various sources, including the World Bank, the Reserve Bank of India, and the Ministry of Finance. The data is analyzed using regression analysis to establish the relationship between taxation and FDI. The results of the study show that taxation policies have a significant impact on FDI in India. The study finds that an increase in corporate tax rates and tax complexity leads to a decrease in FDI inflows. On the other hand, tax incentives and a stable tax regime have a positive
impact on FDI inflows. Additionally, the study finds that the impact of taxation on FDI varies across sectors. Based on the findings, the study recommends that the Indian government should consider reducing corporate tax rates and simplifying tax policies to attract more FDI. The government should also provide tax incentives to investors in sectors that have high potential for growth and development. Furthermore, a stable tax regime should be maintained to instill confidence in foreign investors.
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