By Ashley Coutinho
The Securities and Exchange Board of India (Sebi) has shot down requests by foreign portfolio investors to exempt them from paying the GST. In a mail sent last week, Sebi has clarified that services provided to FPIs will not be considered under export of services. The export of goods or services is considered zero-rated supply and GST is not levied on it.
Sebi has said GST would be levied on registration fees and annual fees received by it with effect from July 18, 2022. The tax will not be levied on fees received before this date. There were fears within the FPI community that GST could be applied retrospectively. But that seems to have been laid to rest for now with the Sebi clarification.
GST will also be applicable on fees paid by custodians based on assets they manage. “The levy will result in an additional cost of a few hundred dollars. But that’s not the point,” said a custodian. “It is a question of whether it is a right thing to do, or not. FPIs are outside India and GST is technically supposed to be for transfer of good and services in India. So, is it fair to levy the tax?”
Since FPIs do not have an output tax liability, they will not be able to claim tax credit, said experts.
Category I FPIs have to shell out $3,000 as registration fees, while category II FPIs have to pay $300. The registration fee is not applicable to international or multilateral agencies such as the World Bank and other institutions eligible for privileges or immunity from payment of tax and duties.
There are 10,805 FPIs registered with Sebi. Over 3,000 of these are from the US and about 1,300 from Luxembourg. FPIs from the US, Mauritius and Singapore manage the most by way of assets under custody.
The market regulator in a July 18 circular said entities dealing in the securities market will need to pay GST at the rate of 18% on fees charged by it.
“All the market infrastructure institutions, companies that have listed or are intending to list their securities, other intermediaries and persons who are
dealing in the securities market, are hereby informed that the fees and other charges payable to Sebi shall be subject to GST at the rate of 18% with effect from July 18, 2022,” the circular said.
The GST Council in its meeting held on June 28 and 29 recommended withdrawal of exemption granted to services rendered by Sebi.