FinMin may remove key irritant for QFIs

Responding to complaints of practical problems, mulls making PAN optional for foreign investors under new route

The finance ministry may remove a key irritant for those looking to invest through the recently introduced qualified foreign investor (QFI) route.

The ministry’s department of revenue is likely to clear a proposal to make the requirement of acquiring and furnishing of a Permanent Account Number (PAN) optional for QFIs, according to people familiar with the development.

QFIs are persons not resident in India but in any of the FATF (Financial Action Task Force) countries. Under the framework laid out in January, a PAN was a condition for QFI registration. Potential QFIs were required to obtain a PAN from the revenue authorities by filing Form 49AA. This requires the applicant to give his/her foreign address and proof thereto.
 

OUT OF THE FRYING PAN

• QFIs were required to furnish PAN
• PAN form requires specific documents as address proof 
• Process takes 15-20 days, costly 
• Courier of PAN cards back and forth across India and investor's country 
• Ministry planning to make PAN optional

Tax experts had pointed to several practical difficulties in a foreigner getting a PAN in India. The documentation process was also said to be too cumbersome.

In a presentation made at a recent Assocham conference, attended by ministry officials, Ameet Patel, partner, Sudit K Parekh & Co, had said the address proof requirements were too stringent for foreign investors. “The documentary evidence acceptable for this purpose is a very restrictive list, unlike the list for resident applicants. As a result, foreigners are going to find it very difficult to provide proof of residence,” he had said.

There were other problems, too. Even if the QFI did provide the proof, he would be in trouble if he did not give a local mailing address where the PAN card could be sent. If only a foreign address was given in the application form, the PAN card would be couriered there. After this delay, the PAN had to be sent again to the Qualified Depository Participant (QDP) for further processing. Unless these formalities are completed, other critical functions such as opening of a bank account would also get delayed.

Considering these difficulties, making the PAN optional would be a welcome move, as it reduces a critical entry barrier for QFIs, said a senior official with a foreign bank-owned QDP. “We have been hearing about this move for a while. It will be a big relief, as getting a PAN takes about 10-15 business days; plus, there is a cost attached to that,” he said.

Depositories, he added, had said they used PAN as a check to ensure multiple accounts were not opened. Also, unless tax policy was tweaked appropriately, investors would have to obtain the PAN at a later date for the purpose of filing tax returns.

The move to make PAN optional will be a sequel to recent relaxations of KYC (know-your-customer) norms for foreign investors, by the Securities and Exchange Board of India (Sebi). On Wednesday, the market regulator said it had done away with in-person verification requirements for foreign institutional investors. “Sebi has received representations regarding operational issues in the implementation of aforesaid Sebi circulars in the case of foreign investors, viz. foreign institutional investors, sub accounts and qualified foreign investors. In consultation with the stock exchanges, depositories and intermediaries, certain clarifications are issued with respect to these investors,” the regulator said in a circular.