New Delhi: Ahead of the meeting of capital market representatives with the Finance Minister Nirmala Sitharaman on Friday, highly-placed sources said the FPI tax issue is currently under discussion, but no decision has been taken with regard to its withdrawal.
"It (FPI tax issue) might be under discussion .. but nothing has been signed or has been approved on file... there is no official word on it," a highly-placed source said.
The capital market participants are to meet Sitharaman on Friday and expected to raise the tax issue of the Foreign Portfolio Investors (FPIs) and will probably seek its withdrawal.
They have been called by the Finance Ministry as part of the government's outreach for seeking inputs on beating the slowdown and a broader economic revival programme before any policy intervention is taken up by the North Block.
Apart from meeting with the Finance Minister where representatives of NBFCs and mutual funds would also be present, there also will be a separate meeting by Economic Affairs Secretary Atanu Chakraborty with representatives of only FPIs likely at a different date.
Amid continuing overseas fund outflow from the markets following the decision to impose a surcharge on FPIs, Sitharaman had said: "I am quite open to hear them out what they (FPIs) have to say."
Sources said that if a decision to review and its revoke the tax on FPIs is taken, the government may have to issue an ordinance to make amendments in the Finance Bill, 2019. Alternatively, the 'grandfathering' clause may be invoked to provide partial relief. IANS reported on both options in its reports earlier.
With emergence of reports that the FPI tax is going to be withdrawn pushed up the market, the highly-placed sources reiterated that as of now, no decision has been taken on the matter.
Read more:Finance Minister asks commerce ministry to assess revenue impact of proposed RCEP
In the 2019-20 Budget, the government decided to increase surcharge from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore. This hike would also be applicable for FPIs operating as trusts or as association of persons.
Spooked by the raised surcharge, FPIs pulled out Rs 2,881.10 crore from debt and equity segments on August 1 and 2. In July, they had withdrawn a net amount of Rs 2,985.88 crore from the capital markets.
The impact of the raised surcharge is significant because more than a fifth of the FPIs investing in Indian equity, debt and hybrid instruments use the trust route for investments. To moderate the impact, the government had suggested the FPI trusts to convert into companies, but the suggestion was turned down by the FPIs as they anticipated the conversion would not be tax-neutral besides being a time-taking process.
As FPIs invest in different countries where the tax structures are different too, the conversion of the entity to make it suitable and profitable to invest in India could bring new challenges for them to invest in other economies.
Meanwhile, the NBFC sector which is also meeting the Finance Minister on Friday is likely to raise the availability of credit to them from the banks and also to stress on transmissions of lower interest rates by the banks to them after the Reserve Bank of India has been lowering the interest rates.
