Past MAT Demand a Hindrance To Foreign Fund Flows: Sridhar Sivaram
Morgan Stanley veteran and former managing director Sridhar Sivaram told NDTV that the government’s decision to levy the contentious minimum alternative tax (MAT) retrospectively on foreign institutional investors (FII) for capital gains made during previous years, poses a hindrance to foreign fund flow into the country.
“It’s very tough to say whether the FIIs will put money or not put money, but it is an irritant which hinders the flow of funds into the country as an FII,” Mr Sivaram who is now founder Siva Capital Advisors said.
Although, Finance Minister Arun Jaitley has offered some tax concessions to foreign investors on MAT he has stood firm on not allowing them a retrospective exemption from the levy.
“I don’t know what the government thinks FIIs are sitting on some tree with money that they can just send it across to India for tax for some previous years. It doesn’t work like that, these are funds that have NAVs (net asset value) on a daily basis and there are investors who come in and go out. So if there’s a tax liability it should have been told upfront at that point of time,” Mr Sivaram said.
Foreign fund managers find themselves on a sticky wicket due to the government move and their margins will be under pressure, he said.
“It does make a difference (to margins) because suddenly he has to pay tax, out of the fund he’s managing. So the fund would have to sell that much to raise the tax amount.”
Mr Jaitley last month had said the government will press ahead with Rs 40,000 crore tax demands on foreign institutional investors (FII) for capital gains made during previous years.
“If this is taken to the logical end in which way the at least the government is depicting it, then this is very serious. You are talking about Rs 40,000 crore, I don’t know how they got this number, basically means that funds have to sell Rs 40,000 crore in the market,” Mr Sivaram said.
So far, the tax department has sent demand notices to 68 non-DTAA (Double Taxation Avoidance Agreements) foreign portfolio investors seeking altogether Rs 602.83 crore.
