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The ministry has placed the report on its website and sought comments from stakeholders.
The ministry has placed the report on its website and sought comments from stakeholders.

NIPFP report says new SEZs required to establish financial hubs

National Institute of Public Finance and Policy in its report has recommended establishing a modern financial regulatory framework

New Delhi: To establish financial hubs such as London and Singapore, India should set up special economic zones (SEZ) for financial services companies that would have full capital convertibility and receive tax breaks, the National Institute of Public Finance and Policy has said in a report to the finance ministry.

The ministry has placed the report on its website and sought comments from stakeholders.

Arguing that India has the potential to become a producer of global financial services rather than just a consumer, the report has recommended establishing a modern financial regulatory framework either through enacting a finance SEZ law, or by enforcing the Indian financial code as recommended by the financial sector legislative reforms commission.

It has also sought residence-based taxation through which non-resident activities are exempted from taxation. While personal income tax would be paid by individuals working in the finance SEZ, and corporation tax would be paid by companies which operate there, taxes related to financial activities by non-residents would be exempted.

It has sought implementation of tax pass-through for pooling vehicles to encourage foreign investors using Indian financial service providers for private equity, venture capital and mutual funds.

“This is identical to the taxation framework used by every international financial centres. This is a modest and feasible strategy. It will deliver high paying jobs in finance SEZs for India," the report said.

Besides exemption from excise duties, it has also sought exemption from securities transaction tax, commodities transaction tax and service tax.

It has also advocated preferential access for India-related finance in the finance SEZ, like what has been done by China for Hong Kong.

For resolution of disputes within a finance SEZ, the report has suggested creating a seat and venue for arbitration.

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