Indian Bourses Are Betting On GIFT Offshore Hub: Here’s All You Need To Know
Having pulled the plug on offshore derivatives tied to Indian indices and stocks, domestic stock exchanges hope their operations in the nation’s first international finance hub in Gujarat can draw foreign investors.
The International Financial Services Centre at Gujarat International Financial Tec-City near Ahmedabad is Prime Minister Narendra Modi’s idea to create a finance hub like Singapore or Hong Kong in his home state. The Bombay Stock Exchange, Asia’s oldest, was the first to start operations in January last year. Its rival and the country’s biggest bourse, National Stock Exchange, followed six months later.
Foreign investors trade in futures linked to Indian indices and stocks in locations like Singapore because of lower costs as contracts are dollar-denominated and offer a tax advantage. Vikram Limaye, managing director and the chief executive officer at the NSE, told BloombergQuint that Investors will see the benefit of coming directly to India.
Here’s what the GIFT City offers…
No Taxes On Foreign Investors
Foreign portfolio investors trading through India’s first international financial services centre will be exempt from the five taxes: short and long-term capital gains tax, Minimum Alternate Tax, securities transaction tax and commodities transaction tax, dividend distribution tax and stamp duty. That’s clearly announced and backed by the government, Ajay Pandey, MD and group CEO of GIFT City, said over the phone.
Minimum Alternate Tax
Businesses registered in the GIFT City will have to pay 9 percent MAT. That compares with 18.5 percent tax on all profits payable by companies in a special economic zone for first five years and half the profit exempted in the next five, said Pandey. Foreign portfolio investors will not be taxed as they are clients, but business units will pay MAT. Clients will pay taxes as per their residency rules.
The central government has exempted units in the finance hub from the dividend distribution tax. In addition, they will also enjoy a tax holiday for the first five years on profits, extendable by another five years on 50 percent of the profits that are ploughed back.
The units are also exempt from indirect tax on goods and services procured within the city. The Gujarat government, too, has waived the stamp duty on transactions within the city’s jurisdiction.
Setting Up An Exchange
A foreign exchange can set up operations in the GIFT City. There is a capital requirement and they will have seek market regulator’s approval. Overseas bourses can register with an initial capital of Rs 25 crore and will have to scale up the net worth to Rs 100 crore in three years. Their clearing corporations can start with an initial capital of Rs 50 crore and scale up to Rs 300 crore in three years.
They can fully own the bourse or partner with an Indian peer. There are no restrictions, said Pandey.
Liquidity At IFSC
When BSE and NSE started operations, their combined turnover was $2-3 million a day. It’s now $300 million and over $400 million on some days. The BSE recorded its highest daily traded turnover of $404 million on Jan. 17, it said in a statement. From four-five products, they have close to 150 now, said Pandey.
More than 100 brokers have registered with IFSC and over 35 have received permission from the markets regulator to begin operations. Foreign brokerages are yet to set up shop.
Commodity Futures Compliance
One of the major requirements for the U.S. investors to invest in derivatives products in India is to come through Commodity Futures Trading Commission-compliant indices like the Sensex and Nifty.
The GIFT City falls under regulations of the Securities and Exchange Board of India and all arrangements with overseas regulators are applicable, V Balasubramaniam, managing director and chief executive officer at BSE arm India INX, said over the phone.