A finance ministry panel for increasing the competitiveness of the country’s financial sector has recommended “rationalisation and ultimate removal of capital controls”, certainty in regulations and an internationally competitive tax regime.
Unless these etsps are taken, India could continue to lose further ground to offshore markets in derivative tradings on the rupee and Nifty. With investors having the choice either to trade onshore or offshore depending the competitive advantage, the panel has favoured a residence-based taxation from the present source-based taxation regime in India.
Besides calling for implementation of Goods and Service Tax, it also favoured removal of securities transaction tax and stamp duty on derivative transactions.
The Standing Council of Experts, which was constituted in June, 2013 with Secretary Economic Affairs as the chairperson, has submitted its first report to ministry recommending reforming of the currency, equity and commodity derivatives markets in India. The report estimated that offshore rupee and Nifty derivatives alone add up to a daily turnover of about $20 billion out of the total market size of $63 billion.
The panel has recommended phasing of the reform process into short-term actions, medium-term goals and long-term goals and clearly indicated the implementing agencies for them. The government will take a view on the recommendations of the standing council after public consultations latest by October 6, 2015, the ministry said.
The lack of certainty about the frequency and magnitude of changes in rules and regulation becomes an important factor in differentiating similar products across different jurisdictions. “Regulatory risk has emerged as a critical factor diminishing the ability of the Indian financial markets and participants from competing against global alternatives,” it said.
#Remove STT but without the adverse impact of higher capital gains tax
#Remove stamp duty as index derivatives are cash settled and no delivery of the underling takes place
#Clarify the regulatory position on PNs
#Devolve market timing decisions from regulator to exchanges
#Remove regulatory constraints on banks and MFs to participate in commodity derivatives
#Sign tax treaties similar to the Mauritius and Singapore treaty with other FATF-compliant countries
#Create a working group for common clearing among exchange traded products, equity, equity derivatives and currency derivatives, in phases
#Remove regulatory restrictions on domestic FIs participation in equity derivatives
#Move to a residence-based taxation regime
#Consider a time-bound plan for the internationalisation of the rupee
#Set up an expert committee for creating an onshore OTC market for equity derivatives