18
Mumbai: Several foreign banks and Indian brokerages face prospect of their licences in Gujarat International Finance Tec-city, or GIFT City, being cancelled with many of them unable to meet a key rule required to stay put.
An entity that sets up shop in upcoming Gujarat-based international finance centre needs to earn more dollar income than in rupees.
With government in 2018 clarifying that dollar income coming from services to Indian companies or individuals would not be considered, many of these entities are unable to meet criteria of operating from Gift city, which was set up to compete with established financial centres like Singapore and Hong Kong.
Most banks, which opened their offices in Gift, are using platform to mostly disburse dollar loans to Indian entities and individuals.
They are barely servicing foreign entities.
Similarly, most brokerages that are operating out of Gift City cater primarily to Indian clients and proprietary trading and have little revenue coming from non-resident clients.
Foreign banks such as Deutsche and domestic players including State Bank of India (SBI) and Yes Bank have running operations in IFSC Gift.
Several banks and brokerages have approached Finance Ministry seeking relief from these provisions.
The regulations are part of Special Economic Zones (SEZ) Rules, 2018 and are primarily aimed at export oriented businesses like Information Technology (IT) that operate out of any SEZ.
The central government had introduced concept of SEZ in 2000 to create industry clusters in country that would boost India’s exports.
Companies which set up shops in these SEZs are entitled for several incentives including tax sops, lesser compliance requirements etc.
IFSC Gift was also started as a SEZ that specializes in financial services and hence these laws are also applicable to entities that operate out of Gift.
“There is a difference between a regular SEZ and IFSC Gift.
The key aim of Gift City was to bring global financial services on-shore which are currently being rendered from other overseas jurisdictions,” said a legal expert.
“Such provisions will kill interest of several global players in Gift City,”
Another industry expert who spoke on condition of anonymity said sectors such as Information Technology and manufacturing, which are most prominent participants in SEZ domestically, are very different from banking and financial services.
“Considering construct of financial services sector and nuances within sector, it is difficult for these players to meet NFE (net foreign exchange) requirement.
The government should therefore provide relaxations to such units."
Market participants said it is too early to expect Gift City registered entities to turn profitable, especially in dollars.
Industry estimates suggest 60-70 per cent of market volume in Gift City is coming from proprietary trades.
Banks situated in Gujarat hub are mostly giving dollar denominated loans to Indian corporates.
“The exclusion of revenues earned while rendering services domestically from NPE calculation will render lot of structures in IFSC GIFT non-viable,” said Tejesh Chitlangi, partner, IC Universal Legal.
“Suitable exemptions from certain provisions of SEZ Act need to be extended to financial services units set up in Gift as they may not be relevant and practically applicable in context in which such special structures are set-up in Gift,” he added.
Several institutions have begun start operations from Gift because of slew of tax benefits including exemption from capital gains, stamp duty and securities transactional tax.
For non-market entities, a concessional minimum alternate tax (MAT) rate of 9 per cent is applicable instead of 18 per cent on-shore.
