Foreign portfolio investors seek stable tax policies to set up fund management businesses
NEW DELHI: Foreign portfolio investors have sought stability in taxation policies as the government looks to lure them to set up fund management business in the country. They have made a number of suggestions, Economic Affairs Secretary Shaktikanta Das said after a meeting of the finance ministry with representatives of FPIs and institutional investors.
“They have to be looked into and will be placed before the government and the government will take a decision.” “Tax issues were naturally raised… We discussed fund management industry in India,” he said. Representatives of two dozen FPIs including Citibank, Deutsche Bank, Fidelity, Goldman Sachs and BlackRock met finance ministry officials as part of the exercise to improve ease of doing business in financial markets.
This is the first comprehensive interaction with the FPIs in the run up to the budget for the next fiscal year and after the government buried the minimum alternate tax controversy that after the last budget and unnerved foreign investors.
“The whole intention was to basically understand the suggestions and difficulties … and try to resolve those issues, and whatever issues can be immediately dealt with will be dealt with by the government,” Das said. The meeting was also attended by senior officials from the central bank, market regulator and the Central Board of Direct Taxes. The government is keen to understand from FPIs about the steps needed to draw them to set up business in India. Most of them prefer to work out of Singapore or other friendlier tax administrations. The meeting also discussed operational issues like registration and reporting for FPIs, Das said, adding that some of the suggestions were “very useful” in the run up to the budget.
Currently, foreign investors routing funds through countries with which India has Double Taxation Avoidance Agreements are exempt from paying short-term capital gains tax. However, if a foreign fund house sets up a permanent establishment in India, it will be liable to pay capital gains tax as per the domestic taxation law. Nomura Fixed Income Securities Managing Director Neeraj Gambhir said the issue of withholding tax of 5 per cent on corporate bonds was discussed at the meeting. “The industry has been asking for a more longer-term treatment on it. It’s 5 per cent, it’s due to expire in 2017. Lot of people are making long-term investment. They need clarity on how long this is going to stay,” Gambhir said. Besides, there were discussions on the way to deepen and enhance liquidity in the corporate bond market.
The government has taken several steps for deepening of bond market and some suggestions were made to further enhance liquidity in the segment, said Kaku Nakhate, president and country head-India at Bank of America Merrill Lynch. “Government has been trying to be assertive about the fact that they want to maintain certainty around tax framework as far as foreign investors are concerned and they continue to remain committed on that,” said Vineet Bhatnagar, president and head at Phillip Capital.