Dismisses S&P’s Ratings stand: FinMin promises to resolve tax concerns of FPIs

“Number of suggestions have come and they have to be looked into. It will be placed in front of the government and it will take a decision. Tax issues were naturally raised… We discussed fund management industry in India,” Das said.

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When asked about the S&P’s cautious remarks on the Indian economy, he called it a mere “point of view” while exuding confidence that the country will clock over 7.5 per cent GDP growth in the current fiscal.

“We are expecting this year about 7.5 per cent plus growth. The inherent stability factors of the economy are quite strong,” he said adding the government will continue to take necessary reforms to improve the state of the economy. In its report Monday, S&P had said that according to the outlook, it did not expect to change India’s rating “this year or next based on our current set of forecasts,” while retaining the country’s rating at

BBB(-), the lowest investment grade rating.

At present, foreign investors prefer to route funds through countries with which India has double taxation avoidance agreement (DTAA) to avail of the benefits including exemption from payment of short-term capital gains tax. If foreign fund houses set up business in the country, they would have to pay capital gains tax as per the domestic taxation laws. The concern on the issue was shared by the FPIs present in the meeting. The finance ministry will hold similar consultation with the domestic financial institution on Wednesday.

“(intention was to understand) and try to resolve those issues and whatever issues can be immediately dealt with will be dealt with by the government,” the secretary said.

Overseas investors have made a net investment of Rs 24,342 crore in equities, and Rs 53,091 crore in debt market this year.

The FPIs also raised the issue of withholding tax of 5 per cent levied on the corporate bonds. “The industry has been asking for a more longer-term treatment on it. It’s 5 per cent, it’s due to expire in 2017. Lot of people are making long-term investment. They need clarity on how long this is going to stay,” Neeraj Gambhir, MD, Nomura Fixed Income Securities, said.

The FPIs also raised operational issues including registration and reporting along with the need to deepen the bonds market. Das said that some of the suggestions are “very useful” in the run up to the Budget.

“The Centre has been trying to be assertive about the fact that they want to maintain certainty around tax framework as far as foreign investors are concerned and they continue to remain committed,” Vineet Bhatnagar, president and head, Phillip Capital.