Sources claim that the proposed 10% surcharge on income tax on foreign portfolio investors (FPIs) may be withdrawn by the government.

India may exempt foreign portfolio investors from higher taxes Reuters report
Money Investment Friday, August 09, 2019 - 18:12

The Indian government may be forced to take back /amend a couple of proposals made in the Union Budget according to international news agency Reuters. In a piece published on its website, the agency quotes sources to claim that the proposed 10% surcharge on income tax on foreign portfolio investors (FPIs) may be withdrawn by the government. The Budget proposals have already been passed by the Parliament and the next session may be months away. The Finance Ministry may have to issue an executive order now and have it ratified later by the Parliament.

The announcement in the budget saw the markets react quite negatively with the FPIs pulling out their funds from the market and over Rs 12.53 lakh crore of market capitalisation lost in the hands of the investors. The government is now under pressure to correct the situation. There have been reports of a spillover effect of this in the financial sector with lenders reluctant to sanction loans. Part of the issue of stagnation being witnessed in the automobile sector is also seen through the prism of this decision on FPIs by the government.

Reuters claims there are two other measures announced in the Budget that may come up for review. One is the issue of overseas sovereign bonds and the other, increasing the minimum shareholding in listed companies to 35% from the existing 25%.

These are not developments reported officially by any government entity but by the agency quoting officials from the ministry.

The broader expectation however is that the FM would continue with her confabulations with the different sections of the economy and then follow through with her own ministry officials and where needed the other ministries concerned. She might then have to present a case to the cabinet and the PM for their approval before any serious announcements can be made. The revenue implications and the fiscal deficit concerns will have to be addressed too.

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