SEBI eyes greater fund flows from abroad
Easier norms on anvil for qualified foreign investors
Samie Modak / Mumbai Apr 26, 2012
To improve the framework for qualified foreign investors (QFIs) and
facilitate broad-based participation, the Securities and Exchange Board
of India (Sebi) is working on large-scale changes to the framework
notified earlier this year.
It has convened an informal forum with key market participants, such as
custodians, qualified depository participants (QDPs), brokers and tax
consultants. Representations on an ongoing basis have been made to Sebi
and the finance ministry by various entities to iron out issues. Market
players have also sought clarity on certain issues related to taxation
and qualification of investors.
The market regulator, in January, had issued guidelines for direct entry
of QFIs. However, flows have not started to come through this route,
which experts say is due to lack of clarity on the subject.
According to sources, QDPs have strongly opposed the norm asking them to
file tax returns on behalf of QFIs. They want Sebi to transfer the
responsibility to QFIs themselves. By the current rules, QDPs are
responsible for deduction of tax at source on profits or dividends or
any other income made by QFI.
C R Sasikumar, managing director of SBI-SG Global Securities Services,
said, “Sebi is clearing ways and removing bottlenecks to realise QFIs’
full potential and is supporting the QDPs with active discussions in
various forums.” “A QDP is just a pass-through, who would overlook the
money entering and leaving Indian shores. Deducting tax is a huge
responsibility to take for a small fee. It is a risk QDPs don’t want to
take,” said Naresh Makhijani, partner, KPMG.
Another major move contemplated is to permit QFIs to place orders
directly with a broker and take confirmation from custodians, as allowed
in foreign institutional investor trades. The present rules require
QFIs to place orders directly with QDPs, who are to process these
through the broker. Also, the tax framework could be tweaked to bring it
at par with those for non-resident Indians.
Another change discussed in recent meetings is to allow residents of
Gulf Cooperation Council (GCC) nations. At present, to qualify as QFI an
individual has to be a resident of a nation, compliant with the
Financial Action Task Force rules and a signatory to the International
Organisation of Securities Commission’s Multilateral Memorandum of
Understanding.
GCC, comprising Bahrain, Kuwait, Saudi Arabia and the United Arab
Emirates, don’t fulfill this criteria. However, they are part of the
Middle East & North Africa Financial Action Task Force. Sources said
Sebi might soon make an amendment to allow GCC residents to qualify as
QFIs.
“If GCC countries are allowed, it will surely be a right step,” said
Sasikumar. There are, he said, a large number of wealthy individuals in
the GCC countries. Experts say investments from individuals of the GCC
countries are also expected to be more stable, as they generally invest
for the long term. This would also be more transparent, as they would be
individual investors.
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