NEW DELHI: Indian government demanded to nearly 100 foreign firms to pay an estimated $5-6 billion in tax.
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 from them to well over $10 billion, sources said.
Spooked by these “retrospective” notices and assessment orders, the foreign investors have begun lobbying intensely with the 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’.
The FIIs have, however, decided to challenge the tax demands, stating that MAT cannot be levied on FIIs or FPIs as they do not earn any ‘business income’ in India and their income is defined as ‘capital gains’ under the I-T Act. These FIIs, many of whom have now converted themselves into Foreign Portfolio Investors (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 the top Finance Ministry officials, while they are now planning 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 USD 226 billion (over Rs 11 lakh crore). 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”.
