The Effect Of Tax Policy On Foreign Direct Investment In India

As the process of economic globalization has been speed up, tax which is one of factors effecting the decisions of FDI becomes more and more important. Since 1990s, when Indian government realized the important impact of FDI on developing company, Greater efforts were exerted to attract FDI. From then on, a chain of preferential policies were Implemented to promote the growth of Indian economy. Tax Favorable policy was one of the important means. China and India are both developing companies in Asia, and there are many resemblances between two countries. This article aims to learn the effects of FDI on developing countries and what we can learn from India by studying the impact of tax policy on FDI in India.In terms of"Double Gaps Model"which is founded by famous American economists Chenery and Strout, when there weren't financial deficits or dividends, a country might have foreign exchange gap and savings gap. As a result of it, attracting FDI was necessary. The preferential policy was mainly on enterprise income tax and the IT industry was a very example on it, so a model was built to proof the relevance between tax and FDI inflow. The result showed that there is a minus relevance between them.In order to do a further study on the impact of tax on FDI, this paper investigated it from five aspects. Summarily, with the reform of tax policy in India, the FDI inflow rose steadily, and it promoted the development of India.Besides, this paper analyzed the similarities and differences between China and India on quantities, structures, geographic occurrence and tax policies with comparative method, and summarized what we can do from it.