The Finance Ministry opened the New Year with a major initiative to review the framework governing capital controls and foreign portfolio investments.
For this, the Ministry has extended the term of the Sahoo Committee, which recently submitted its recommendations on depository receipts.
In the second phase, the nine-member panel — headed by M. S. Sahoo, a former whole-time member of SEBI and now Secretary to the Institute of Company Secretaries of India — has been asked to review the framework on external commercial borrowings (ECBs) and foreign currency convertible bonds (FCCBs). It is to submit a report by March-end, according to sources close to the development. Besides reviewing the framework of direct listing of Indian companies abroad, the panel will look at dual listing of corporates.
Under source-based taxation, all income arising in a particular state is taxed in that state, whereas in residence-based taxation, the resident in subject to tax on all his global incomes.
India follows a mix of models but predominantly the source-based taxation method. Many experts feel this model may have outlived its usefulness for such instruments as ECBs and FCCBs.
The Sahoo panel may either recommend steps to improve this model or dispense with it, say tax experts. While determining the tax incidence, one also needs to understand the interplay of domestic tax laws with the tax treaty framework, they point out.
“To give a fillip to the capital market, India needs to soften its stand on excessively stretching the contours of source-based taxation,” Aseem Chawla, Partner, MPC Legal, a law firm, told Business Line .
In the first phase, the Sahoo panel — set up in September 2013 — had submitted several recommendations to open wider the depository receipts window. It had suggested allowing Indian companies to issue depository receipts in overseas markets against any underlying security. Currently, domestic companies can issue such receipts only against ordinary equity shares.