Govt may withdraw FPI surcharge after Sitharaman’s tax has foreign investors fleeing stock market

Financial Express, August 08, 2019

The government is finally mulling withdrawing the surcharge on Foreign Portfolio Investors imposed by Finance Minister Nirmala Sitharaman in her maiden Budget 2019 in July, news reports said citing Reuters, sending benchmark indices Sensex and Nifty soaring. The new levy on FPIs had become the scourge of Indian stock markets, with the foreign investors withdrawing money in droves, with the Sensex and Nifty in continuous downfall since the announcement. The government is now considering withdrawing by way of a notification the proposal to levy the surcharge, ET Now reported, adding that the revenue forgone for the government will amount to only about Rs 400 crore. The surcharge, levied on super rich individuals with an annual income of Rs 2 crore or more, also applied to the FPIs registered in India as trusts. 
In the month of July, the stock markets saw the highest outflow since October 2018 with FPIs selling nearly Rs 12,000 crore worth of equities, the data shows. The FPIs were net buyers in the Indian capital markets in the first half of 2019, barring January. A few days back, the FPIs had conveyed to the Finance Ministry that it would be difficult to convert trust into companies. FPIs, including pension and retirement funds, educational endowment fund, etc, come into India through the trusts’ route.
Finance Minister Nirmala Sitharaman, during a discussion on the Finance Bill in the Parliament on July 18, had suggested that the FPIs could consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge. The FPIs had sought roll back of surcharge tax as a confidence boosting signal from the government. Meanwhile, the Sensex is up about 450 points to 37,147, while the Nifty is trading near the 11,000-mark.

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