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Concerned over the budgetary proposals related to the General Anti-Avoidance Rules (GAAR), the Asia Securities Industry and Financial Markets Association (ASIFMA) has urged the Finance Minister, Mr Pranab Mukherjee, to address ‘unintended tax consequences' of the Finance Bill 2012. ASIFMA is the body of foreign brokerages.
In a letter, jointly sent with the Securities Industry and Financial Markets Association, it said: “We are writing to express our deep concern that certain portions of the Finance Bill 2012 could adversely impact investment in the Indian capital markets by the global investment community. Specifically, the Bill's provisions relating to taxation of indirect transfers of assets as well as the GAAR are very broadly worded and could be interpreted to tax Foreign Institutional Investors (FIIs) on their investments in the Indian listed equity markets.”
The relevant provisions of the Bill are expected to take effect on April 1, and it appears that market participants have already begun to reduce their positions in India. FIIs have assets under custody of over Rs 10 lakh crore (over $200 billion) or 17 per cent of the capitalisation of India's equity markets. In addition, they invest substantial sums in Indian Government and corporate debt, it added.
It said FIIs fear that the new rules could subject this foreign investment to double or triple taxation. Such ‘onerous' taxation or even the risk of such taxation could threaten this important source of capital for India's businesses. In the meantime, FIIs are carefully evaluating these new tax risks.
Mr Nicholas de Boursac, CEO of ASIFMA, said: “The financial services industry is concerned that these tax proposals may inhibit the efficient operation of the Indian debt and equity markets. We believe that many of these consequences are unintended, and urge the Finance Ministry to clarify the scope of the tax proposals and thereby avert unnecessary disruption to the Indian capital markets.” Incorporating some of the recommendations of the Standing Committee on Finance would go a long way to resolving this important and urgent issue, he said.
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