INSUBCONTINENT EXCLUSIVE:
Mumbai: Several foreign banks and Indian brokerages face prospect of their licences in Gujarat International Finance Tec-city, or GIFT City,
being cancelled with many of them unable to meet a key rule required to stay put.
An entity that sets up shop in upcoming Gujarat-based
international finance centre needs to earn more dollar income than in rupees.
With government in 2018 clarifying that dollar income coming
from services to Indian companies or individuals would not be considered, many of these entities are unable to meet criteria of operating
from Gift city, which was set up to compete with established financial centres like Singapore and Hong Kong.
Most banks, which opened their
offices in Gift, are using platform to mostly disburse dollar loans to Indian entities and individuals
They are barely servicing foreign entities
Similarly, most brokerages that are operating out of Gift City cater primarily to Indian clients and proprietary trading and have little
revenue coming from non-resident clients.
Foreign banks such as Deutsche and domestic players including State Bank of India (SBI) and Yes
Bank have running operations in IFSC Gift.
Several banks and brokerages have approached Finance Ministry seeking relief from these
provisions.
The regulations are part of Special Economic Zones (SEZ) Rules, 2018 and are primarily aimed at export oriented businesses like
Information Technology (IT) that operate out of any SEZ
Companies which set up shops in these SEZs are entitled for several incentives including tax sops, lesser compliance requirements etc
IFSC Gift was also started as a SEZ that specializes in financial services and hence these laws are also applicable to entities that operate
The key aim of Gift City was to bring global financial services on-shore which are currently being rendered from other overseas
said sectors such as Information Technology and manufacturing, which are most prominent participants in SEZ domestically, are very different
from banking and financial services
The government should therefore provide relaxations to such units."
Market participants said it is too early to expect Gift City registered
entities to turn profitable, especially in dollars
Industry estimates suggest 60-70 per cent of market volume in Gift City is coming from proprietary trades
begun start operations from Gift because of slew of tax benefits including exemption from capital gains, stamp duty and securities
For non-market entities, a concessional minimum alternate tax (MAT) rate of 9 per cent is applicable instead of 18 per cent on-shore.
