Mumbai’s IFC dream hits roadblock

NEW DELHI: Mumbai will clearly have to cross many obstacles before becoming an international finance centre (IFC). It has hit the first roadblock with the revenue department rejecting the recommendation of the high-powered expert committee on removal of some taxes like securities transaction tax (STT) or zero capital gains tax.

The high-powered panel had recommended scrapping transaction taxes such as STT and exempting non-residents from all direct taxes regardless of whether India had double taxation avoidance agreements (DTAA) with their home countries. It had also suggested that the country should avoid a dual tax regime for residents and non-residents specifically to attract international financial services business.

Turning down the recommendations, the revenue department has pointed out that it was necessary to tax a resident on his global income, a source said. Taxing a resident was the sovereign right of any country and to the extent the earnings of a resident were enhanced by his income sourced outside the home country, the additional income would have to be taxed.
Also, a country had the right to tax any income sourced in that country. And, since India had entered into DTAAs with many countries, it was conforming to global best practices in taxation.

Justifying the levy of STT on transactions, the department has argued that STT was not a transaction tax and it was there as a substitute for capital gains tax where value of transaction was used as a measure of capital gains. It was not a tax on export of international financial services. The panel had said the removal of STT was similar to removal of cascading taxes in manufacturing.

The committee had also suggested implementation of the Kelkar’s committee’s suggestion on removal of all central and state transaction taxes like stamp duties. The panel, in its report, had pointed out that international financial services purchases by the country stood at $13 billion in 2005 and were expected to be in the range of $50-70 billion by 2015.