Sebi backs foreign portfolio investors, raises concern over impact of MAT
MUMBAI: India’s capital markets regulator has stepped in to back foreign portfolio investors (FPIs) as they oppose the minimum alternate tax (MAT).
In a recent letter to the finance ministry, Sebi has voiced its concerns over the possible impact of MAT on foreign funds — the largest group of investors on Indian stock exchanges. The regulator has said that the fear of MAT has rattled many offshore investors and must be dispelled at the earliest, a person aware of the communication told ET.
The letter follows an hour-long meeting held a month ago between senior Sebi officials and 25 foreign portfolio investors along with representatives of the Hong Kong-based Asia Securities Industry & Financial Markets Association (ASIFMA). “MAT has caused a lot of uneasiness among foreign investors,” said a person who attended the meeting.
‘Sebi has been Proactive’
“Sebi has conveyed this to the government. At the start of the meeting, Sebi clarified that since this was a tax issue, the best it could do was to take it up with the government,” the person said.
The finance ministry did not respond to ET’s request for comment while a spokesperson for Central Board of Direct Taxes (CBDT), the apex tax body, said the board has not received any letter from Sebi. Notices served by the income-tax department, asking several FPIs to fork out MAT for past years, have rattled foreign investors who believed that the uncertainty caused by the Vodafone tax claim was a thing of the past.
“The reason we met Sebi was because FPIs registration is the mandate of Sebi and the MAT issue affects all FPIs investing in India. We wanted to know what Sebi’s stance on this issue is. If this problem is allowed to prevail, the whole FPI industry might go away.
Sebi was sympathetic towards us and they said that they would take up this issue with the government,” said Patrick Pang, managing director-Head of Fixed Income and Compliance, ASIFMA.
According to Siddharth Shah, partner at law firm Khaitan & Co, Sebi as the primary regulator has been proactive in taking up policy issues with the central government.
“While clearly any decision in relation to MAT falls outside of Sebi’s jurisdiction, the regulator’s raising of this issue with the Centre should have persuasive effect on the government to examine these concerns on a priority,” said Shah. As many as 68 FPIs have been asked to pay MAT, which is 20% tax on long-term capital gains.
Reflecting the views of offshore investors, Pang said that MAT should not apply to any foreign investor because the legislative intent at the time MAT was introduced was not meant to apply to companies with no presence in India. The regulations, as they understood, made it clear that MAT was only applicable on income from books and records kept in India.
MAT has not been levied on foreign investors since it was introduced 20 years ago. Foreign investors sensed some relief when Finance Minister Arun Jaitley in his budget said that MAT would not be levied on FPIs from April 1, 2015. But by end March, several FPIs received assessment orders from the Indian tax office.
Some of the foreign investors approached the dispute resolution panel (DRP) of the tax department while six FPIs filed writ petitions before the Bombay High Court. A separate case between the revenue authorities and Castleton, an FPI, is also pending in the Supreme Court. “While the final ruling by the Supreme Court will hopefully provide the clarity on the subject one way or the other, in the short run it has surely dampened the spirits of foreign investors,” said Siddharth Shah
The MAT issue resurfaced about six months ago when the tax department sent notices to select FPIs. Earlier this month the government formed a three-member committee under retired judge AP Shah to examine whether MAT could be levied on FPIs.
The MAT issue resurfaced about six months ago when the tax department sent notices to select FPIs. Earlier this month the government formed a three-member committee under retired judge AP Shah to examine whether MAT could be levied on FPIs.
“The FPIs are still worried about the whole MAT issue as they are not sure how this would pan out,” Rajesh H Gandhi, partner at the consultancy Deloitte Haskins & Sells.
