BRI taxation framework worsens threat for India
Being outside of the tax framework makes it difficult for India when it comes to bilateral tax treaties with BRI countries
Panama’s recent withdrawal from China’s Belt and Road Initiative (BRI) amid United States (US) pressure over Chinese proxy control of the Panama Canal underscores the geopolitical tensions surrounding Beijing’s flagship infrastructure programme. China’s lending practices have pushed several of India’s neighbours including Pakistan, Bangladesh, Nepal, and Sri Lanka towards economic distress. With the Maldives now on the verge of sovereign default, China’s funding of infrastructure in these nations is clearly not purely economic and carries strategic implications that directly impact India’s regional security.
The 2017 BRI agreement, set to auto-renew in 2026, had enabled China to invest in Panamanian infrastructure, including ports operated by Hong Kong-based Hutchison. However, Panama has officially exited the BRI on February 7, 2025. Launched in 2013, the BRI aimed to revive ancient Silk Road trade routes through over $1 trillion in global infrastructure projects, including roads, ports, railways, and digital networks. The initiative spans more than 151 countries, including 21 in Latin America, 53 in Africa, and 10 in Southeast Asia. Notable absentees include India, Japan, and most European Union (EU) nations. The BRI Tax Administration Cooperation Mechanism (Britacom) further solidifies China’s influence, embedding debt-laden economies into Beijing’s fiscal and digital governance frameworks. These countries risk becoming arenas for external coercion in strategically sensitive regions.
For India, the vulnerabilities of its neighbouring economies to Chinese debt and strategic lending are concerning. Sovereignty concerns have led India to consistently refuse BRI participation, particularly with respect to the China-Pakistan Economic Corridor, a $62-billion investment infrastructure and energy initiative that connects China’s western Xinjiang province to the Gwadar port in Pakistan, through Pakistan-occupied Kashmir. Bangladesh has committed to $24 billion in BRI projects, including the Padma bridge rail link, while Nepal is engaged in the Trans-Himalayan Multi-Dimensional Connectivity Network.
However, Chinese-funded ports in Bangladesh, such as Chittagong, and in Sri Lanka, such as Hambantota, are not just commercial projects but have the potential for dual use, altering regional security dynamics. Therefore, debt dependency remains a major risk. Sri Lanka’s loss of operational control over Hambantota port after defaulting on Chinese loans in 2022 is a glaring example of China’s debt-driven leverage. Nepal’s mounting debt, Bangladesh’s repayment challenges for BRI-funded projects like the Payra power plant and Karnaphuli tunnel, and now the recent Maldives’ sovereign default risk all serve as red flags.
The integration of tax systems through Britacom further cements concerns about economic sovereignty. China’s Britacom, a specialised tax cooperation framework launched in 2019 under China’s State Taxation Administration, aims to harmonise tax policies, reduce trade barriers, and enhance cross-border investment among BRI participants. Currently, Britacom has 37 member-jurisdictions and focuses on tax certainty by reducing double taxation and resolving disputes, as seen in the Hong Kong-Türkiye tax agreement signed in 2024. It also provides capacity-building programmes through BRI Tax Academies in China, Kazakhstan, and Algeria while promoting digital transformation by standardising e-tax systems.
The recently announced Hong Kong Action Plan (2025–2027) prioritises policy harmonisation and risk alerts for multinational firms. The impact of Britacom is already visible. The Maldives joined in 2024 to access Chinese funding for port upgrades while streamlining tax compliance for BRI contractors. Bangladesh is using Britacom’s dispute resolution framework to safeguard its $24 billion in BRI projects, including the Payra Power Plant. The Greater Bay Area, encompassing Hong Kong, Macau, and Guangdong, signed a 2024 tax pact under Britacom to simplify cross-border business operations.
For India, remaining outside Britacom presents several challenges. Tax asymmetry is a concern as Bangladesh and Nepal align with Britacom’s tax standards, complicating India’s bilateral tax treaties. Indian firms operating in BRI nations, such as Nepal’s hydropower sector, lack access to Britacom’s arbitration framework, increasing legal risks. The push for digitised tax systems under Britacom could widen the administrative gap between India’s Goods and Services Tax (GST) network and neighbouring countries’ BRI-linked platforms. Beyond infrastructure, the BRI’s Digital Silk Road, combined with Britacom’s tax standardisation, raises concerns over data security and surveillance.
As neighbouring countries adopt Chinese digital infrastructure and tax platforms, India faces growing technological challenges. However, Panama’s exit demonstrates that alternatives exist. India can leverage this moment by strengthening regional initiatives such as the India-Myanmar-Thailand Trilateral Highway, a 1,400-kilometre project countering China’s Mekong connectivity, and Chabahar port, which provides a direct route to Central Asia without reliance on Pakistan. India’s collaboration with Japan, Australia, and the US through Quad infrastructure partnerships offers an opportunity for transparent funding models. Additionally, India could expand its Line of Credit programmes, which have already extended $28 billion to 63 nations. India must proactively counter these developments by expanding the Asia-Africa Growth Corridor with standardised tax protocols and offering technical assistance to neighbouring countries as an alternative to Britacom’s capacity-building programmes.
Britacom exemplifies how the BRI’s ambitions extend beyond physical infrastructure to reshape global fiscal governance, a trend India must navigate as its periphery integrates deeper with Chinese-led systems. By offering a credible alternative to China’s debt-driven diplomacy, India can prevent further economic entanglement of its neighbours and mitigate potential threats to its strategic security interests.
Poonam Sidhu Khaira is a former IRS officer. The views expressed are personal