Union finance minister Arun Jaitley on Saturday met a group of foreign institutional investors (FIIs) in Mumbai with the aim of clearing their apprehensions on the ambiguities in the proposed finance bill regarding tax exemptions. He also assured the FIIs of the Centre's resolve in easing business for foreign investors in India.
Jaitley attended a closed-door meeting with representatives of JP Morgan, Morgan Stanley, Deutsche Securities and other at the National Stock Exchange office in the financial capital. The FIIS had met him to convey their concerns, especially with regard to treatment of interest income and on the status of existing cases where tax demand has already been raised.
The finance minister, however, refrained from making public the outcome of his meeting. While addressing the reporters, he said that ambiguities if any, regarding the bill would be cleared in the Parliament. "I would not like to comment on these issues. All clarifications would be done in the Parliament," he said.
He also warded off questions regarding the proposed shift of regulating money market from RBI to capital markets regulator Sebi.
The Parliament is scheduled to discuss the Railway Budget and Union Budget from March 9.
Foreign investors are particularly worried about the drafting of the provisions on Minimum Alternate Tax (MAT) exemptions, which provides relief to capital gains but doesn't elaborate whether the exemptions also apply to the interest income on government securities and corporate bonds.
In his budget speech on February 28, the finance minister had said: "To rationalize MAT provisions for FIIs, profits corresponding to their income from capital gains on transactions in securities that are liable to tax at a lower rate, shall not be subject to MAT."
The initial cheer surrounding the budget announcement on MAT exemptions soon gave rise to concerns after the fine print of the finance bill suggested the exemption on MAT levy for foreigh investors will takes effect from April 1, 2015. This implied that the tax will be applied on incomes for preceding periods.
"The intention of the government may be good, but the way the provisions have been drafted, it opens up a Pandora's Box," says Gokul Chaudhuri, leader, direct tax at BMR Advisors. "The provision on exempting MAT levy from April 1, 2015, gives rise to the assumption by the tax department that all prior income can be taxed. This has increased FII concerns," he added.