NEW DELHI: A rollback of the super-rich tax surcharge, removal of long-term capital gains tax (LTCG) on shares and tax policy certainty topped the wish list of market participants, including foreign portfolio investors (FPIs).
They also sought a fiscal stimulus from the government to rev up the slowing economy at a meeting with finance minister Nirmala Sitharaman that she had called on Friday to take stock of issues faced by them. Those attending included senior FPI, private equity and mutual fund executives.
“The issue of surcharge on funds structured as trusts was discussed… and (removal) of long-term capital gains tax,” said Nandita Parker, president, Asset Managers Roundtable of India.
She said investors are looking for ease of investing in India and some quick fixes can revive sentiment. One of the FPI participants, who didn’t want to be named, expressed hope that Friday’s discussions would lead to some action.
“They emphasised on the need for clarity on the taxation side,” the person said, adding that some even pitched for lowering or removal of the dividend tax.
FPIs also raised issues faced in restructuring themselves to avoid the higher surcharge. As much as 40% of FPIs will be impacted by the higher levy as they are structured as trusts and not companies. “Issue of lack of trust between the government and the FPIs was also highlighted,” a senior FPI executive said.
Sitharaman has been holding similar meetings since Monday with the banking sector, industry leaders and the automobile sector to assess the issues faced by them as the government looks to undertake steps to arrest the slowdown.
ET had reported last week that the government was also looking at ways to ring-fence FPIs from the super-rich surcharge, including the prospect of issuing a circular or amending the finance act by way of an ordinance.
“I have made it absolutely clear that if there are FPIs who want to tell me something about (the matter), I am quite open to hearing out what they have to say,” the finance minister had said on Monday.
Concern Over KYC Norms
The government increased the surcharge in the budget from 15% to 25% on taxable income between Rs 2 crore and Rs 5 crore, and from 15% to 37% for income above Rs 5 crore. This covers FPIs operating as trusts or as association of persons, which has added to the volatility on the bourses.
The BSE Sensex fell nearly 8% after the July 5 budget to 36,690 points on August 7, its lowest since early March this year, as foreign investors exited the market with an adverse global environment adding to the negative sentiment. The Sensex has bounced back nearly 900 points in the last two sessions in the hope that the government will provide some relief on the surcharge. FPIs have pulled out nearly $1.7 billion in July and August so far.
Sitharaman had told ET in an interview that it was not the government’s intent to impose the surcharge on FPIs.
Overseas investors in debt sought certainty on withholding tax on masala bond interest. Participants also expressed concern over the current know-your-customer (KYC) norms for FPIs and asked for them to be relaxed to improve ease of doing business.
FPIs that participated in the meeting included Goldman Sachs, Nomura, Blackrock, CLSA, Barclays, HSBC, Barclays, Fairbridge, Nomura and JP Morgan. Sitharaman also held a separate meeting with mutual funds, private equity firms and stock exchanges. This meeting was attended by Uday Kotak, managing director, Kotak Mahindra Bank; Rashesh Shah, chairman, Edelweiss; Nilesh Shah, MD, Kotak Mahindra AMC; Andrew Holland, CEO, Avendus Capital; and Sanjay Nayar, KKR. “She was very receptive,” said Nayar, adding that he pitched for channelising local savings into the equity and debt markets.
Vikram Limaye, CEO and MD of NSE, said the minister was “very receptive,” without elaborating.
Association of National Exchanges president Vijay Bhushan suggested that transaction costs in capital markets should be reduced and brought in line with global rates.
Raman Aggarwal, chairman of the Finance Industry Development Council, was of the view that there was a need to look beyond banks for funding of nonbanking finance companies (NBFCs). He was for setting up a National Housing Board (NHB)-like regulator for the NBFC sector as well.