14/09/21

INDIA: Tax policy to boost first international financial centre planned.

As published on moneycontrol.com, Monday 13 September, 2021.

The central government is planning a tax policy specifically for Gujarat International Finance Tec-City, or GIFT City, to boost its foreign investment prospects, targeting green energy financing and fintech, among other areas, to emerge as a global hub.

Gift City is located next to Gandhinagar but is treated as an overseas foreign jurisdiction for tax and foreign exchange purposes, classified as an international financial services centre, or IFCI.

One of Prime Minister Modi’s pet projects, the centre is striving to woo foreign investment into the GIFT special economic zone so that it can compete against global financial hubs like London, Dubai and Singapore.

Units functioning out of the IFCI already receive tax exemption to the tune of 100 percent for 10 consecutive years out of 15 and a range of other concessions. The Centre has been monitoring the progress made by GIFT City at the highest levels after putting in place an effective framework for its regulation.

“You have seen tax holiday announcements by the Finance Minister in the last budget regarding GIFT City. There will be more. The sectors we are targeting include green energy financing and aircraft leasing. Green energy financing is the next big thing in global finance and we want to be a major platform,” said an official who requested anonymity.

This person added that a tax policy for the GIFT City jurisdiction is being contemplated by the government.

Located on the banks of the Sabarmati river, GIFT City was conceived at the Vibrant Gujarat investor summit in 2007. The sprawling complex spread across nearly 890 acres targeted offshore banks, brokerage services, insurance companies, accounting and audit firms, and information technology and information technology-enabled services, among others.

“GIFT City is one of those initiatives on which the Prime Minister’s Office takes stock at least once a month. There are detailed briefings on the progress made, the issues being faced, the hurdles still to be cleared,” said a second official, who also wished to remain anonymous.

And it is not just the finance ministry and PMO. The regulator of the GIFT special economic zone, the International Financial Services Centres Authority, and other institutions like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) are also involved.

The effort is showing results. The number of entities onboard GIFT City between 2015 and 2019 was 140. That number rose to 265 in less than two years since. JP Morgan Chase & Co., Punjab National Bank and KPMG International are among the financial companies looking to set up base in Gift SEZ, media reports have said. The number of entities operating out of GIFT City could soon cross 280.

"With the regulator being formed, GIFT city has been on the proverbial ‘high-speed’ highway. Decisions are being taken really fast. Earlier we used to see mostly domestic players participating. Now it has become a truly international play," said Keyur Shah, Partner and Tax Financial Service Leader at EY.

In her 2021-22 Budget speech, Finance Minister Nirmala Sitharaman said the government was committed to turning GIFT City into a global financial hub.

“In addition to the tax incentives already provided, I propose to include, among others, tax holiday for capital gains for aircraft leasing companies and tax exemption for aircraft lease rentals paid to foreign lessors,” she said.

Sitharaman also said tax incentives will be provided for relocating foreign funds in the complex and allowing tax exemptions to the investment divisions of foreign banks located inside it.

“From 2015 to 2019, the Gift City SEZ did not really pick up. This was before the unified regulator, IFSCA, was set up and there were regulatory gaps as the jurisdiction came under multiple regulators like RBI and SEBI,” said the second official cited above.

All this changed in December 2019 when the IFSCA Act was passed by Parliament. By April 2020, the new regulator was set up with former corporate affairs secretary Injeti Srinivas as its head. The IFSCA Act enabled the new regulator to take over the powers of RBI, SEBI and the Insurance Regulatory and Development Authority of India (IRDAI) and others within GIFT.

“The regulatory framework has started to come together and we have managed to onshore more offshore investments in the past one-and-a-half years than before that,” the official said.

The services GIFT SEZ offers include fintech, alternative investments for green energy, aircraft leasing and financing, gold bullion exchange, insurance and reinsurance, global in-house centres for financial institutions, listing and trading of real investment trusts, investment banks and rating agencies.

Sitharaman also said in the budget that the government would support the development of a world-class fintech hub at GIFT SEZ. Last month, the SEZ launched a pilot run of the planned gold bullion exchange.