Senior bureaucrats in the prime minister’s office (PMO) have met top finance ministry officials to discuss the foreign portfolio investment (FPI) surcharge, which has roiled the market, a government source said.
The state of economy that is causing a great deal of concern was also talked about in the meeting held on August 1, the official said.
"Various suggestions and submissions made by FPIs were taken up for discussion. FPIs have made submissions to the finance ministry and the PMO (prime minister’s office) to tweak the surcharge law, if not a direct rollback," the official said.
FPIs, through law firms, told the finance ministry that it was impractical to convert trusts into companies, the official said.
Suggestions for tweaks include a one-time tax-free transfer of shares to special purpose vehicles, self-declaration by FPIs, and higher tax only on incomes of direct individual beneficiaries, among others.
The introduction of the surcharge on higher income brackets announced in the Budget by finance minister Nirmala Sitharaman has led to a brisk selloff by FPIs. A higher surcharge will see many of the overseas portfolio investors paying more in taxes.
FPIs sold Rs 11,740 crore worth of equities in June, the highest outflow since October 2018.
In her Budget speech on July 5, Sitharaman proposed an additional surcharge on “individuals and trusts” earning more than Rs 2 crore and Rs 5 crore, respectively. The announcement triggered an exodus of FPIs from the country.
During a discussion on the Budget in Parliament on July 18, the minister suggested that FPIs consider the option of structuring themselves as companies rather than trusts to avoid paying the new surcharge.
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