Tax conundrum: FPIs uneasy after 18% GST on regulatory services
The Centre’s recent move to impose Goods and Services Tax (GST) on services rendered by the markets regulator, Securities and Exchange Board of India (Sebi), has rattled foreign portfolio investors (FPIs). They fear the decision could result in GST on “export of services”, which is currently a zero-rated supply.
“Custodians of FPIs will be taking it up with the market regulator and the Ministry of Finance (MoF), and will seek clarity on the applicability of the levy,” said two people privy to the matter.
“GST levy of 18 per cent is steep. But more importantly, it is a matter of principle. GST is a local tax, while services offered to FPIs are for entities residing outside the country. So, in other words, GST is getting applied to the export of services. This may lead to more complications for FPIs in the future,” said one of the sources cited above.
Under the GST rules, the export of goods or services has been treated as a zero-rated supply. This means that goods or services exported shall be relieved of GST upon them either at the input stage or at the final product stage. Recently, the market regulator clarified that all market infrastructure institutions, including stock exchanges and persons dealing in the securities market, would have to pay 18 per cent GST on the fees charged by it. The clarification came after the government decided to withdraw the exemption granted to services by Sebi.
As a result, custodians will have to pay GST on FPI registration and other fees that they pay to Sebi on behalf of overseas investors.
