Government panel submits financial sector reforms report
A government committee on financial sector reforms has finalised a report, broadly outlining the amendments required in financial laws and taxation to make domestic sector more competitive in the international market.
Sources in the know said the report was submitted on Tuesday by the Standing Council of Experts, which was constituted in 2013 by the finance ministry, with the then secretary of economic affairs as the chairperson, to assess and make recommendations regarding international competitiveness of Indian financial sector.
The report submitted to the finance ministry contains recommendations by the council on reforms relating to currency, equity and commodity derivative markets in India.
It suggests phasing of the reform process in three time frames – short-term actions, and medium-term and long-term goals.
A source said the report, while pointing the constraints such as Goods and Services Tax (GST) not being in place, and the applicability of source-based tax and income tax rules being unpredictable, recommends doing away with the uncertainty relating to treaty benefits for foreign “participants” under the proposed General Anti Avoidance Rule (GAAR).
The contentious law, which was framed by the United Progressive Alliance (UPA) government to deter tax avoidance by foreign fund companies and was to be implemented beginning the current fiscal, has been deferred by finance minister Arun Jaitley by two years. The latest postponement in April came after the previous government had pushed it by three years in 2012.
The panel also suggests signing of tax treaties similar to the Mauritius and Singapore with other Financial Action Task Force (FATF) compliant countries endorsing residence-based taxation.
For boosting equity derivative market, the committee recommends elimination of Securities Transaction Tax (STT) and stamp duty, which adds to the cost of transaction. In order to rev up the commodities derivative market, it suggests extending non-speculative status to all exchange traded commodity derivatives contracts.
Finally, it reiterated its emphasis on residence-based taxation regime in the long run.
The report has identified eight factors as critical to international competitiveness of the Indian market. These included capital controls, tax policy, regulatory risk, frictions arising from procedure rules on participation, the state of development of the domestic financial market and the presence of sophisticated domestic participants, limits placed on the maximum number and size of transactions permitted, trading time and market micro-structure.
M S Mani, senior director, indirect tax, Deloitte India, said there was an urgent need for reforms in the financial services sector to bring about “predictability in tax policy”.
“At the broad level, more reforms will bring in more predictability in the tax policy, which will improve business confidence and boost investment into the sector,” he said.
