Foreign Investors Pull Out Rs 3,446 Crore Since ‘Super-Rich Tax’ Was Announced In Budget 2019
A higher tax surcharge on India’s super-rich has prompted foreign investors to pull out money from the nation’s equity market.
Foreign institutional investors sold around Rs 3,446 crore from the day of the budget announcement to date, according to data available on the website of National Securities Depository Ltd.
India’s equity indices shed more than 3 percent during the period. While the NSE Nifty 50 Index fell as much as 3.32 percent, or 392 points, since Union Budget 2019-20, the S&P Sensex dropped 2.98 percent, or 1,176 points. The Nifty Bank gauge has declined 5.42 percent, or 1,705 points, since July 5.
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 super-rich tax rate of 39 percent and 42.7 percent—one of the highest in the world—respectively, for the two groups.
Global and non-resident investors participate in India via non-corporate trusts. These structures are treated on par with individuals for tax purposes. That has led to concerns about the super-rich tax being applicable to foreigners.
“FPIs have been on a selling spree ever since the government proposed a ‘super-rich tax’ in its budget, and with no respite in sight from the government, the quantum of net outflows shot up,” PTI quoted Himanshu Srivastava, senior analyst manager research at financial services firm Morningstar, as saying.
Higher outflows came even as the government clarified that FPIs and alternative investment funds can get registered as corporates instead of a non-corporate structure or trust to avoid paying the super-rich tax. That may be because converting investment vehicles into companies, according to tax experts, won’t be easy.
Besides, the government’s proposal to urge the market regulator to raise minimum public shareholding threshold to 35 percent from 25 percent disappointed investors.
Since the budget announcement, around 65 of the Nifty 500 stocks were trading near their 52-week low. These include Motherson Sumi Systems Ltd., Maruti Suzuki India Ltd., Bosch Ltd., Aurobindo Pharma Ltd. and GAIL India Ltd.