 "Keys to success of International Finance Centre at GIFT City")
The International Financial Services Centre (IFSC) coming up at GIFT City at Gandhinagar, Gujarat, expected to be notified as a Finance Special Economic Zone (FSEZ), is likely to have separate regulations for securities and currency trading, banking and insurance, apart from a zone-specific tribunal as an appellate authority.
The Union finance ministry is also working on a competitive tax structure suitable for IFSC. This includes proposals to lower the corporate tax rates and exempting indirect taxes like the Securities Transaction Tax (STT) for equity spot and derivatives trading, apart from other derivatives.
However, commodity exchanges will have to wait to start trading at IFSC till the regulator, Forward Markets Commission (FMC), merges with the Securities and Exchange Board of India (Sebi). Both Multi Commodity Exchange and National Commodities and Derivatives Exchange, two leading ones, are in discussion with GIFT for this.
MCX has a plan to offer gold futures, with other commodities. NCDEX plans to offer agricultural futures. Experts suggest a simplified tax structure, no exchange controls and a sound judicial system, apart from hassle-free regulation, will be the key requirements for making IFSC successful.
While the Reserve Bank of India has set a month-end deadline to notify changes in the Foreign Exchange Management Act with respect to financial institutions to be set up at IFSC, the Insurance Regulatory and Development Authority of India (Irdai) and Sebi will finalise their regulations by month-end.
Ramakant Jha, managing director, GIFT Company Ltd, said: “We have asked the government to have an efficient tax structure and alternate dispute resolution mechanism for IFSC at GIFT. We trust the rules and tax structure being finalised by March 31 will be in line with the expectation.”
Sources said RBI has already indicated that banks or branches coming up here will not have to provide for the rules on Cash Reserve Ratio and Statutory Liquidity Ratio.
BSE and National Stock Exchange, which have announced setting up of international exchanges there, had recommended removal of STT in their meeting last week with finance ministry officials.
Rohan Solapurkar (director of taxes), Deloitte (Singapore), said: “To make IFSC successfully compete with the likes of IFCs in Dubai or Singapore or Malaysia, two major concessions are required. First, no exchange controls and the rupee should be fully convertible on the capital account. Markets and players should be allowed to decide on how much money to invest in shares or bonds/securities. Second, there is a need for several tax concessions and exemptions like lower corporate tax, which should not be more than 10 per cent, no withholding tax and no dividend distribution tax, apart from other tax benefits.”
Tax rates in various IFCs, especially in the regions with which India will compete, are lower. There is none in Dubai, it is three per cent in Malaysia and 10 per cent in Singapore.
Apart from regulations and taxes, a sound judicial mechanism is a must. The government has, according to a source, discussed setting up of an appellate tribunal in the GIFT.
Anjali Sharma from the finance research group at Indira Gandhi Institute of Development Research, Mumbai, said: “FSEZs will need not only good laws but sound enforcement agencies and sound courts. Three things are required — a court where disputes are heard between private parties, an arbitration mechanism and a court to hear appeals against regulators. All these will need to function in line with international standards.”
In India, different financial markets have dedicated regulators — Sebi, Irdai, FMC, etc. However, Sharma says: “A regulatory regime in line with the Indian Financial Code might make sense in a Finance SEZ. This means a unified financial sector regulator.”
The Union finance ministry is also working on a competitive tax structure suitable for IFSC. This includes proposals to lower the corporate tax rates and exempting indirect taxes like the Securities Transaction Tax (STT) for equity spot and derivatives trading, apart from other derivatives.
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However, commodity exchanges will have to wait to start trading at IFSC till the regulator, Forward Markets Commission (FMC), merges with the Securities and Exchange Board of India (Sebi). Both Multi Commodity Exchange and National Commodities and Derivatives Exchange, two leading ones, are in discussion with GIFT for this.
MCX has a plan to offer gold futures, with other commodities. NCDEX plans to offer agricultural futures. Experts suggest a simplified tax structure, no exchange controls and a sound judicial system, apart from hassle-free regulation, will be the key requirements for making IFSC successful.
While the Reserve Bank of India has set a month-end deadline to notify changes in the Foreign Exchange Management Act with respect to financial institutions to be set up at IFSC, the Insurance Regulatory and Development Authority of India (Irdai) and Sebi will finalise their regulations by month-end.
Ramakant Jha, managing director, GIFT Company Ltd, said: “We have asked the government to have an efficient tax structure and alternate dispute resolution mechanism for IFSC at GIFT. We trust the rules and tax structure being finalised by March 31 will be in line with the expectation.”
Sources said RBI has already indicated that banks or branches coming up here will not have to provide for the rules on Cash Reserve Ratio and Statutory Liquidity Ratio.
BSE and National Stock Exchange, which have announced setting up of international exchanges there, had recommended removal of STT in their meeting last week with finance ministry officials.
Rohan Solapurkar (director of taxes), Deloitte (Singapore), said: “To make IFSC successfully compete with the likes of IFCs in Dubai or Singapore or Malaysia, two major concessions are required. First, no exchange controls and the rupee should be fully convertible on the capital account. Markets and players should be allowed to decide on how much money to invest in shares or bonds/securities. Second, there is a need for several tax concessions and exemptions like lower corporate tax, which should not be more than 10 per cent, no withholding tax and no dividend distribution tax, apart from other tax benefits.”
Tax rates in various IFCs, especially in the regions with which India will compete, are lower. There is none in Dubai, it is three per cent in Malaysia and 10 per cent in Singapore.
Apart from regulations and taxes, a sound judicial mechanism is a must. The government has, according to a source, discussed setting up of an appellate tribunal in the GIFT.
Anjali Sharma from the finance research group at Indira Gandhi Institute of Development Research, Mumbai, said: “FSEZs will need not only good laws but sound enforcement agencies and sound courts. Three things are required — a court where disputes are heard between private parties, an arbitration mechanism and a court to hear appeals against regulators. All these will need to function in line with international standards.”
In India, different financial markets have dedicated regulators — Sebi, Irdai, FMC, etc. However, Sharma says: “A regulatory regime in line with the Indian Financial Code might make sense in a Finance SEZ. This means a unified financial sector regulator.”