Last Updated:December 14, 2024, 14:32 IST

The suspension of most favoured nation (MFN) status for India by Switzerland introduces tax challenges for Indian firms operating in Switzerland, particularly in sectors like financial services, pharmaceuticals, and IT.

Investors need to keep an eye on sectors like pharmaceuticals, IT, financial services, and engineering goods.

Switzerland’s recent decision to suspend the Most Favoured Nation (MFN) status for India could impact Indian investors in IT, pharma and financial services. This move disrupts the preferential trade framework that India previously enjoyed under the World Trade Organization’s (WTO) MFN principle. Here’s everything investors need to know.

What Is The Issue?

The Swiss government has suspended the most favoured nation status (MFN) clause in the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland, potentially impacting Swiss investments in India and leading to higher taxes on Indian companies operating in the European nation.

The companies will now have to pay a 10 per cent tax on dividends and other incomes, up from the earlier 5 per cent, effective January 1, 2025.

According to a December 11 statement by the Swiss finance department, the move follows the Supreme Court of India last year ruling that the MFN clause doesn’t automatically trigger when a country joins the OECD if the Indian government signed a tax treaty with that country before it joined the organisation.

What Is MFN Status?

The MFN status is a cornerstone of global trade under WTO rules. It mandates that countries treat all trading partners equally, ensuring the same trade tariffs, quotas, and regulations applied to the most favoured partner. The suspension of this status by Switzerland means Indian goods and services may now face higher tariffs, additional trade barriers, and reduced access to the Swiss market.

How Will It Impact Investors?

GTRI founder Ajay Srivastava said the suspension of the MFN clause is a setback for Indian firms operating in Switzerland.

This suspension introduces tax challenges for Indian firms operating in Switzerland, particularly in sectors like financial services, pharmaceuticals, and IT, according to the think-tank Global Trade Research Initiative (GTRI).

According to a stock market analyst, “Investors need to keep an eye on sectors like pharmaceuticals, IT, financial services, and engineering goods.”

What Does Indian Govt Say?

India has said its double taxation treaty with Switzerland may require renegotiation in view of its trade pact with the member states of the European Free Trade Association (EFTA).

“My understanding is that with Switzerland, because of EFTA, the double taxation treaty that we have; it’s going to be renegotiated. That is one aspect of it,” MEA spokesperson Randhir Jaiswal said while responding to a question on the issue at his weekly media briefing.

India-Switzerland Trade Partnership

In FY 2023-24, bilateral trade between India and Switzerland was about $23.76 billion, with the majority of this being imports at nearly $21.24 billion from Switzerland.

Switzerland imports gold and silver, primarily used in the jewellery sector, pharmaceutical intermediates and machinery. Major exports include pharmaceutical products, gems and jewelry, organic chemicals, and machinery.

India received about $10.72 billion in foreign direct investments from Switzerland between April 2000 and September 2024.

In March this year, India signed a free trade agreement with the four European nation bloc EFTA, whose members are Iceland, Liechtenstein, Norway, and Switzerland. Switzerland is the largest trading partner of India, followed by Norway, in the bloc.

The India-Switzerland Double Taxation Avoidance Agreement was signed on November 2, 1994, and subsequently amended in 2000 and 2010.

India is expected to limit imports of laptops, tablets and personal computers after January, two government sources with direct knowledge of the matter said, a move to push companies such as Apple to increase domestic manufacturing.

This plan, if implemented, could disrupt an industry worth $8 billion (roughly Rs. 71,464 crore) to $10 billion (roughly Rs. 84,070 crore) and reshape the dynamics of the IT hardware market in India, which is heavily reliant on imports.

A similar plan to restrict imports was withdrawn last year following backlash from companies and lobbying from the United States. India has since monitored imports under a system set to expire this year and has asked firms to seek fresh approvals for imports next year.

The government feels it has given the industry enough time to adapt, said the sources, who did not want to be identified as discussions are private.

One of the sources said New Delhi will begin consultations with all sides starting next week. It could delay implementing the import restrictions by a few months if needed, the source added.

India’s Ministry of Electronics and Information Technology (MeitY) is working on a new import authorisation system, where companies will have to get prior approvals for their imports, one of the two sources said.

Under the current regime, laptop importers are free to bring in as many devices after an automated online registration.

The industry is dominated by the likes of HP, Dell, Apple, Lenovo, and Samsung, with two-thirds of Indian demand being currently met through imports, a significant amount from China. India’s IT hardware market, including laptops, is estimated at nearly $20 billion (roughly Rs. 1,68,141 crore), of which $5 billion (roughly Rs. 42,035 crore) is domestic production, according to consultancy Mordor Intelligence.

The government is considering minimum quality standards under its ‘compulsory registration order’ for laptops, notebooks and tablets, as one of the ways to weed out low quality devices, the officials said.

“We are working on such restrictions as global treaties stop us from any tariff action on laptops and tablets. It leaves us with few policy options to limit imports,” the second official said.

The federal electronics ministry did not respond to request for comment. The trade ministry said an appropriate decision on the import management system would be taken after consultation with the electronics ministry and other stakeholders.

Such a move will benefit contract manufacturers such as Dixon Technologies who have entered separate pacts with global firms like HP to make laptops and computers in India. Dixon aims to cater to 15 percent of India’s total demand.

Local Production

Limits to India’s imports should be calibrated based on India’s domestic production capacity, an industry source who is part of the government’s consultations said.

The nation’s key production incentive scheme for IT hardware has drawn participation from global firms including Acer, Dell, HP, and Lenovo. Most of the approved participants are ready to start manufacturing, India’s electronic minister said last year.

India has federal subsidies worth nearly $2.01 billion (roughly Rs. 17,655 crore) to promote domestic production.

Data from research firm Counterpoint shows imports of laptops completely assembled abroad in the first five months of 2024 fell four percent from a year earlier, with firms such as Lenovo and Acer increasing local assembly for entry-level laptops.

India has been long emphasised the need for “trusted sources” for electronics and communication devices amid growing concerns over cyberattacks and data theft.

In 2022, Indian Prime Minister Narendra Modi said India should cut reliance on foreign countries for communication technology such as servers.

India will implement mandatory testing of “essential security parameters” for all CCTV cameras from April 2025.

© Thomson Reuters 2024

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

India is expected to limit imports of laptops, tablets and personal computers after January, two government sources with direct knowledge of the matter said, a move to push companies such as Apple to increase domestic manufacturing.

This plan, if implemented, could disrupt an industry worth $8 billion (roughly Rs. 71,464 crore) to $10 billion (roughly Rs. 84,070 crore) and reshape the dynamics of the IT hardware market in India, which is heavily reliant on imports.

A similar plan to restrict imports was withdrawn last year following backlash from companies and lobbying from the United States. India has since monitored imports under a system set to expire this year and has asked firms to seek fresh approvals for imports next year.

The government feels it has given the industry enough time to adapt, said the sources, who did not want to be identified as discussions are private.

One of the sources said New Delhi will begin consultations with all sides starting next week. It could delay implementing the import restrictions by a few months if needed, the source added.

India’s Ministry of Electronics and Information Technology (MeitY) is working on a new import authorisation system, where companies will have to get prior approvals for their imports, one of the two sources said.

Under the current regime, laptop importers are free to bring in as many devices after an automated online registration.

The industry is dominated by the likes of HP, Dell, Apple, Lenovo, and Samsung, with two-thirds of Indian demand being currently met through imports, a significant amount from China. India’s IT hardware market, including laptops, is estimated at nearly $20 billion (roughly Rs. 1,68,141 crore), of which $5 billion (roughly Rs. 42,035 crore) is domestic production, according to consultancy Mordor Intelligence.

The government is considering minimum quality standards under its ‘compulsory registration order’ for laptops, notebooks and tablets, as one of the ways to weed out low quality devices, the officials said.

“We are working on such restrictions as global treaties stop us from any tariff action on laptops and tablets. It leaves us with few policy options to limit imports,” the second official said.

The federal electronics ministry did not respond to request for comment. The trade ministry said an appropriate decision on the import management system would be taken after consultation with the electronics ministry and other stakeholders.

Such a move will benefit contract manufacturers such as Dixon Technologies who have entered separate pacts with global firms like HP to make laptops and computers in India. Dixon aims to cater to 15 percent of India’s total demand.

Local Production

Limits to India’s imports should be calibrated based on India’s domestic production capacity, an industry source who is part of the government’s consultations said.

The nation’s key production incentive scheme for IT hardware has drawn participation from global firms including Acer, Dell, HP, and Lenovo. Most of the approved participants are ready to start manufacturing, India’s electronic minister said last year.

India has federal subsidies worth nearly $2.01 billion (roughly Rs. 17,655 crore) to promote domestic production.

Data from research firm Counterpoint shows imports of laptops completely assembled abroad in the first five months of 2024 fell four percent from a year earlier, with firms such as Lenovo and Acer increasing local assembly for entry-level laptops.

India has been long emphasised the need for “trusted sources” for electronics and communication devices amid growing concerns over cyberattacks and data theft.

In 2022, Indian Prime Minister Narendra Modi said India should cut reliance on foreign countries for communication technology such as servers.

India will implement mandatory testing of “essential security parameters” for all CCTV cameras from April 2025.

© Thomson Reuters 2024

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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Pakistan’s foreign exchange reserves have surged to cover two months’ worth of imports after the arrival of the first tranche from the International Monetary Fund’s (IMF) 37-month loan deal under the $7 billion Extended Fund Facility (EFF), Governor State Bank of Pakistan (SBP) Jameel Ahmed said on Wednesday.

In much-needed support for the country’s fiscally-challenged economy, the State Bank of Pakistan (SBP) received the first tranche of $1.03 billion (SDR 760 million) on Monday, September 30, 2024.

Pakistan had been working on implementing conditions deemed “strict” to complete the loan programme agreed to in July, which Prime Minister Shehbaz Sharif time and again hoped would be Pakistan’s last.

The liquid reserves now stand at $10 billion, providing much-needed stability to the country’s foreign exchange position.

“The foreign exchange reserves have stabilised, and we expect further improvements,” Ahmed said speaking at a banking conference.

He highlighted that the recent IMF disbursement has eased pressure on the rupee, ensuring a smooth supply of dollars in the market.

“[Overseas workers’] remittances have increased, and the supply of dollars has improved,” said Ahmed, noting that a decline in inflation has positively impacted monetary policy.

The governor expressed satisfaction over the government’s fiscal situation, which he said had also improved.

“The rate of borrowing from banks has decreased,” he further stated.

Dispelling the impression of a holdup in repayments to commercial banks, Ahmad said the government was not short of funds. “We are making early repayments of bank loans,” the governor said.

Ahmed also briefly outlined the central bank’s strategy to modernise Pakistan’s banking sector, underlining that promoting innovation in banking could spur economic growth.

“We aim to launch fully digital banking by 2025,” he said, noting that the initiative will enhance financial inclusion and accessibility for millions of Pakistanis.

The SBP governor further revealed plans to expand Small and Medium Enterprises (SMEs) financing, with a target to increase the current volume from Rs550 billion to Rs1.1 trillion over the next five years.

This will support small and medium-sized enterprises, key drivers of economic activity in the country.

As the popularity of digital banking continues to grow in Pakistan, Ahmed acknowledged the rising risks of online fraud.

“Banks have been warned to strengthen their cybersecurity measures,” he said, stressing the importance of safeguarding the growing number of users, which currently stands at 12 million for mobile banking and was increasing at an annual growth rate of 70%.

The central bank governor pointed out that branchless banking was already serving 59 million customers, while the use of mobile and internet banking continues to surge, with internet banking growing at 30% annually.

The governor also highlighted the phenomenal success of Raast, Pakistan’s digital payments platform, which has so far processed transactions worth Rs19 trillion since its launch in 2021.

“Daily transactions on Raast now exceed 2.5 million, and the system is being linked with Middle Eastern software to facilitate low-cost remittances for overseas Pakistanis,” Ahmad noted, adding, “This will make it easier and cheaper for expatriates to send money back home.”

Citing the SBP’s ongoing push towards a more modern, digital-driven banking environment, Governor Ahmed said that innovation was the future of banking and a key factor in Pakistan’s economic development.