Trusts model for IFSCs to work only with more tax sops, easing of norms: Analyst
05 March 2019
BDO India’s indirect tax partner NV Raman said more clarity is needed on the nature of operations that a trust would be allowed to perform.
An Ordinance promulgated by the government last week to allow trusts also to invest in financial special economic zones (SEZs) — India has only one such entity now, the GIFT City in Gandhinagar —may have only a limited impact unless the assorted regulations on such ventures have been eased, analysts said.
With the inclusion of trusts among other entities like companies, authorities etc. which can invest in these SEZs, the government intends to remove a hurdle in the way of global financial investors who prefer to take the trust route to invest. Investors in GIFT City are eligible for various tax reliefs — in fact, they get more tax relief than the units in other SEZs, as while 18% minimum alternate tax (MAT) is applicable to SEZs, GIFT City units have to pay MAT at just 9%.
However, global competitiveness is still to be achieved because in mature markets like Singapore, there are virtually no taxes on such international financial services centres (IFSCs). Also, they have to follow several regulations related to banking, capital markets, insurance, and investment funds enforced by Sebi, RBI, Irdai, PFRDA, etc.
A senior government official said, “Overlapping regulatory norms are impacting the IFSCs’ growth. Now allowing trusts with no detailed plan or strategy is not going to make it grow, let alone attract business from global banks, trusts, pensions funds, etc.”
BDO India’s indirect tax partner NV Raman said more clarity is needed on the nature of operations that a trust would be allowed to perform.. He said operations taking place today in the IFSC in India are core banking and insurance (life & non-life). There is scope for more investments by global pension funds and it remains to be seen whether the trust model would enthuse them, he said.