Market players seek easier tax norms for QFIs

In meeting with finance ministry, demand FII-like tax treatment

Market players associated with handling foreign investment in the country, on Tuesday demanded changes to the tax structure for qualified foreign investors (QFI) in a meeting with finance ministry officials. Requests were made to bring the tax structure at par with foreign institutional investors (FIIs) by removing withholding tax.

The finance ministry, however, said there was no intention of the government at this juncture to make any significant changes to the taxation mode for QFIs.

Senior officials, who attended the the meeting, said taxation will continue to remain a contentious issue when it comes to attracting capital flows through this newly-introduced route.
 

KEY POINTS

• Market players ask ministry to make changes to QFI tax structure 
• But ministry rules out immediate changes to tax structure 
• Ministry to conduct roadshows to attract QFI flows
• Ministry to review QFI framework periodically to iron out issues
• Ministry says has done the best to improve framework

“The present structure still makes it more attractive for QFIs to come through the FII or the participatory note route. There has to be a level-playing field to see serious flows come through this route,” said an official who attended the meeting.

On Tuesday’s meeting, to discuss recent relaxations in norms and removal of doubts, was called by the Department of Economic Affairs ahead of the roadshows to be held between June10 to June 15 in five Gulf countries to attract QFI flows.

The meeting, which lasted for about two hours, was chaired by the joint secretary of capital markets, Thomas Mathew and was attended by several top FIIs, officials from revenue department and about 20 market participants.

It is learnt that ministry officials told market players they have done their best to make the framework attractive and now expect the flows to start through the route.

Experts said the flows will only start once the tax department issues clarifications on tax-filing and know your client front.

In a major policy decision, on January 1, the government had decided to allow QFIs to directly invest in Indian equity markets in order to widen the class of investors, attract more foreign funds, reduce market volatility and deepen the capital market.

The government had subsequently allowed QFIs into corporate bonds in the Budget and had also relaxed the norms for defining QFIs, so as to include six Gulf countries and 27 European commission countries. The market players also sought clarity on whether the $1-billion debt quota created for QFIs would be part of the $20-billion limit for FIIs in corporate bonds.

“The ministry has said the $1-billion limit for QFIs in corporate bonds and mutual fund debt schemes will be in addition to the $20-billion FII limit in corporate bonds. However, it will only come into play once the Reserve Bank issues a circular to this respect,” said an official who was a part of today's meet.

The ministry has said the QFI framework will be reviewed on a periodic basis, based on practical difficulties faced by participants. QFIs include individuals, groups or associations, residents of foreign countries, compliant with FATF and signatory of IOSCO’s multilateral Memorandum of Understanding. QFIs do not include FII/sub-accounts. They are allowed to invest through Sebi-registered qualified depository participant.