Global tax model for finance hubs
New Delhi, April 10: The finance ministry is mulling a new tax regime for financial SEZs of the kind inaugurated today in Gujarat so that the taxes paid by financial institutions working out of them are on a par with Dubai and Singapore.
The country’s first International Financial Services Centre (IFSC) became operational today at GIFT City in Gujarat. Finance minister Arun Jaitley unveiled the regulations, aimed at creating a global financial hub similar to Dubai and Singapore.
Officials said there were demands to cap the maximum of all taxes to be paid by financial institutions and banks operating from such SEZs at 10 per cent or on a par with rates charged by Singapore. No income tax or minimum alternate tax is charged in Dubai.
“We are examining these issues as well as moves that dividend distribution tax and securities transaction tax are not charged from FIIs, which will operate out of Gujarat IFSC as well as the other centre being mooted at Mumbai,” officials said.
An international financial centre deals in stocks, banking, insurance and other financial products and derivatives in foreign currencies as a financial free port with low or no taxes and an easy regulatory regime.
A clarity on the tax regime is not expected till later this year. Officials said it would take at least a year till the Gujarat centre comes on stream and the tax issue would be clarified “long before” that. Companies operating from the financial SEZ will not be covered by the foreign exchange management act.
Financial institutions, including insurers and banks, which are being targeted by the Gujarat IFSC, have said they would wait for the tax structure before committing to set up shop.
They pointed out that companies in Hong Kong only paid tax on profits sourced in Hong Kong and that too at 16.5 per cent on assessable profits with substantive rebates if they were engaged in the insurance or other financial sectors. Companies do not pay tax on profits sourced outside the island and there are no VAT, dividend taxes, withholding taxes on interest paid to foreign creditors or taxes on capital gains.
Officials said the Gujarat centre would benefit from a series of recent policy decisions taken by the RBI and Sebi that would allow a greater degree of freedom to entities. Banks will simply need a licence from the RBI and a minimum capital of $20 million, but will be exempt from CRR, SLR as well as mandated banking requirements such as priority sector lending. Banks will also be allowed to trade in all types of derivative and structured products with board approval.
Foreign firms will be allowed to raise capital within IFSC using depository receipts against Indian and other shares and debt securities. Stock and commodity exchanges can function with relatively low capital levels.
Officials said the centre also aimed to check the flight of trading in rupee and Indian securities to the offshore financial hubs. The Dubai exchange has become the largest offshore centre for rupee futures with average daily volumes of around $1.5 billion.
