Sebi panel pitches for clarity in foreign portfolio investors' tax rules

A Securities and Exchange Board of India (Sebi) panel has suggested that the government should bring more clarity and certainty in the taxation provisions for the newly proposed overseas investor category - foreign portfolio investors (FPIs).

The committee, headed by former cabinet secretary K M Chandrasekhar, recommended that "government may consider bringing more clarity and certainty while prescribing the taxation provisions for FPIs".

The suggestion was made after the panel discussed the present taxation framework for various categories of investors.

The panel was formed with an aim to attract larger number of foreign investors to Indian capital market and it submitted its proposals to Sebi last month. Sebi's board has approved most of its recommendations, while the regulator has decided to consult the government on some of the issues.

According to one of the key proposals that has been approved by Sebi, various classes of foreign investors, including FIIs (foreign institutional investors), sub-accounts and qualified foreign investors (QFIs), could be merged into FPI to put in place a simplified and uniform set of entry norms for them.

These measures come at a time when the rupee has weakened considerably against the dollar and recently hit its all-time low levels of 60 against the American currency.

Also, FIIs have been pulling out money from the Indian debt market, which has resulted in the hardening of yields on government bonds.

In order to make the entry norms easier, Sebi has also approved doing away with the current practice of FIIs and their sub-accounts requiring a prior direct registration of the regulator to operate in Indian markets.

Besides, market regulator Sebi would adopt a risk-based KYC (know your customer) approach in dealing with the overseas investors.

Sebi was of the view that most of the proposals made by this committee were well thought out and they have also been welcomed by the market entities and government departments.

The panel also suggested entail certain modifications in the present legal framework for evolving an integrated policy on foreign investments.

It said that FII and QFI regulations would be required to be repealed and replaced by a new framework for FPIs. The panel has also suggested various changes in the provisions of the Prevention of Money Laundering Act, Income Tax Act and Foreign Exchange Management Act.