Nearly 100 foreign funds have been asked to cough up an estimated $ 5-6 billion for 'untaxed gains' made by them in Indian markets over the past years. The number of affected investors can rise substantially as assessments are still in progress and notices could be served in many more cases, taking the overall tax demand to well over $10 billion, sources said.
Spooked by these “retrospective” notices and assessment orders, the foreign investors have begun lobbying intensely with policy makers and regulators, while stating that the move goes against the government's stated position of providing a `non-adversarial and stable tax regime'.
Till March 31, close to 100 FIIs (foreign institutional investors) got notices for a controversial Minimum Alternate Tax (MAT) of 20%, which are now being followed up with assessment orders.
The FIIs claim MAT cannot be levied on FIIs or FPIs (foreign portfolio investors) as they do not earn any `business income' in India and their income is defined as `capital gains' under the I-T Act. These 100 foreign institutional investors (FIIs), many of whom have now converted themselves into FPIs, include entities from the US and Europe as also those operating through Singapore, Hong Kong and Mauritius.
Among others, the issue has been raised by FIIs with finance minister Arun Jaitley, minister of state for finance Jayant Sinha, capital markets regulator Sebi, the Central Board of Direct Taxes and top finance ministry officials. The FIIs now plan to approach Prime Minister Narendra Modi to intervene in the matter.
When contacted, a top official said that the government is looking into the matter to allay any `genuine concern' such investors might have, but added that no assurance can be given as of now to nullify the notices. There are an estimated 8,000 FPIs registered in the country and they have emerged as a mainstay of the Indian markets over the years with an overall outstanding net investment of $ 226 billion.
Interestingly, this is the first time since 1993 when FIIs were allowed to invest in the Indian markets that such investors have been asked to pay MAT. Amid concerns that investor sentiment can take a bigger hit as similar demands may be slapped on foreign companies, many international bodies have red-flagged the latest move of the tax department, saying “this may act as strong deterrent for foreign investment in India.”
These organizations include the European Fund and Asset Management Association (EFAMA), Asia Securities Industry and Financial Markets Association (ASIFMA) and ICI Global, while many foreign funds have also raised the issue.
