With India re-working taxation treaty with Singapore, an influential grouping of overseas investors has said capital gains tax exemption should be retained in the pact for FPIs in listed securities as that would "greatly ease" concerns of foreign investors.
Seeking elimination of capital gains tax on portfolio investments in listed securities, Hong Kong-based Asia Securities Industry & Financial Markets Association (ASIFMA) also said that India’s tax system is "complex" and "operationally burdensome" to comply with.
"Retention of capital gains tax protection in Singapore treaty, at least for foreign portfolio investments in listed securities, will greatly ease foreign investors’ concerns and make doing business in India easier," ASIFMA’s Patrick Pang said from Hong Kong.
Pang is the Managing Director – Head of Fixed Income and Compliance – at ASIFMA. It has more than 90 member firms including banks, asset managers, law firms and market infrastructure service providers.
India is re-negotiating its tax treaty with Singapore following the revision of pact with Mauritius to ensure that similar provisions related to capital gains tax are in place.
Stating that Singapore has a robust regulatory regime and tight anti-money laundering requirements, Pang said tax treaty with that country should be considered on its own merits.
"It should not be tied to Mauritius, as they are fundamentally different. Retention of capital gains tax protection in Singapore treaty, at least for foreign portfolio investments in listed securities, will greatly ease foreign investors’ concerns," he said.
Further, Pang said India’s tax system is "complex and operationally burdensome to comply with in the first place", as there are different rates between stock and futures, and trading around dividend dates, among others.
In addition, he said developments related to tax treaties and GAAR (General Anti Avoidance Rules) are causing much more concern for overseas investors, particularly foreign portfolio investors (FPI).
ASIFMA noted that if the applicability of GAAR is not clarified, then it would be difficult for an FPI to know if a capital gains tax exemption is possible under a tax treaty.
GAAR is set to be implemented from April 1, 2017.
Calling for elimination of capital gains tax on portfolio investments in listed securities, Pang said such a move would remove uncertainties in investing in India.
"India is an outlier in terms of imposing capital gains tax on portfolio investments in listed securities, and is one of the rare countries to impose both a capital gains tax and STT (Securities Transaction Tax) on listed securities transactions," he noted.