India’s Tax Hike On Super Rich Will Lead To FPI Outflows, Says Asifma
The government’s bid to levy higher taxes on the super rich—and foreign portfolio investors—will lead to an outflow of foreign money, according to Asia Securities Industry & Financial Markets Association.
The lobby group said the proposed increase in surcharge rate on non-corporate FPIs will “unintentionally capture” a lot of overseas funds from the U.S. and Europe that are set up as trusts. “At a time when the government has done a lot to make it easier for FPIs to invest in India, it is a pity that such a tax increase will lead to disinvestment from India.”
The budget proposed to increase the surcharge on individuals with a taxable income of Rs 2-5 crore to 25 percent and for those earning more than Rs 5 crore to 37 percent. This led to an effective tax rate of 39 percent and 42.7 percent—one of the highest in the world—respectively, for the two income groups.
As a result, foreign institutional investors have sold around Rs 3,446 crore from the day of the budget announcement till July 22, according to data available on the website of National Securities Depository Ltd.
Prominent investor and fund manager Samir Arora has earlier told BloombergQuint that India needs to tax overseas investors differently and that the incidence of tax on FPIs could have easily been rolled back.
“Unfortunately it looks like the bill will proceed unchanged,” Asifma said.