The committee on alternative investment funds (AIFs), led by Narayana Murthy, has proposed a slew of reforms to the existing regulations pertaining to venture capital and private equity (PE) funds.
The 21-member panel which was constituted by Sebi released its recommendation report on Wednesday.
The AIF committee has suggested introduction of securities transaction tax (STT) for PE and VC investments, including Sebi–registered AIFs. “Given the high risk and relatively illiquid and stable nature of private equity and venture capital, it needs to at least be treated at par with volatile, short-term public market investments for taxation ,” the report said.
“The report aims to simplify the tax and regulatory implications of AIFs and the suggestions pave ways for the fund managers’ activities to be more practical and easy. This will certainly give a lot of clarity to the sponsors of the domestic funds and their managers,” said Hemal Mehta, senior director, Deloitte.
He said by incorporating the suggestions, the Indian AIF guidelines will give a direct competition to the overseas funds which are Indian dedicated and the Indian fund managers can manage the overseas fund from India. “Section 9A was introduced to manage the overseas fund from India without giving any adverse tax implication to the fund but was not practical. Suggestion to make it more practical is a welcome move” Mehta added.
The committee has suggested creation of a favorable tax regime which will be aiming at bringing about ease of doing business and ensuring clarity, consistency and certainty in the tax policy. The committee expects that these reforms would help increase confidence of investors and will also establish parity in tax policies between alternative investments and public market investments.
The committee suggested that exempt income of AIFS should not suffer tax withholding of 10% and tax rules applicable to investment funds should be extended to all categories of AIFs.
Inflows into AIFs significantly picked up in the last two years. The cumulative funds raised via AIFs were R14,024.24 crore in Q2FY16, compared with R5,874.5 in Q1FY15, data compiled by Sebi showed.