Skip to main content

Sebi likely to ease Invit, Reit framework

Sebi likely to ease Invit, Reit framework
The Securities and Exchange Board of India (Sebi) is looking at ways to revive the infrastructure investment trust (InvIT) market.After two listings earlier this year, the fortunes of the newest investment vehicle that helps cash starved infrastructure companies raise capital by transferring assets and listing them as InvITs have seen as lump.
No companies are coming forward with InvIT plans, while the trading volumes on the two existing ones —India Grid Trust and IRB InvIT Fund —have dried up.Sources say Sebi at its board meeting on Thursday could announce relaxations in the InvIT and real estate investment trust (ReIT) framework.
Tax clarity, changes in the minimum ticket size, and allowing pension funds to participate are some demands made by players operating in this space.In the past two years, the Centre and Sebi have taken measures to boost the market.But more can be done, say industry players.
The recent provisions around the fair market value (FMV) of unlisted shares have unexpectedly created tax concerns among InvIT sponsors.According to the new rules, for taxation purposes the FMV of the unquoted shares will be used against the earlier practice of book value.
While coming up with an InvIT,a sponsor typically creates a special purpose vehicle (SPV) which is unlisted.The SPV then transfers the shares to the InvIT.While earlier the book value of assets was being used as a benchmark, under the new rules the tax incidence is expected to be much higher as the fair value of the asset will be taken into consideration.
“While most of the taxation related issues for InvITshave been resolved, some ambiguities —specifically sections 50CA, and 56(2)(x) of the IncomeTax Act –remain, which raise an issue.Due to this, in some cases, there can be double taxation, i.e. on both the sponsor and the InvIT in case the transfer value is lower than the derived FMV.
To avoid this, while transactions can happen above the fair market value, this in turn would adversely impact InvIT´s yield and consequently investors´ interest,” said Shubham Jain, vicepresident, corporate ratings, ICRA.When it comes to taxation, there is not much Sebi can do.
However, there are areas, such as reduction in the investment ticket size, where Sebi can provide some relief, say experts.The liquidity in the two listed InvITshas been drying up due to the bigger lot size. For instance, the average daily volume in the India Grid Trust fell from Rs 210 crore in June to Rs 50 crore in December.
Similarly, the average daily volume in IRB Invit has fallen from Rs 260 crore in June to Rs 79 crore in December.The minimum ticket size for participating in an Invit is Rs 10 lakh. The high ticket size acts as an entry barrier to discourage smaller retail investors from investing in these products as they are don´t have the knowledge about the product and risks involved in it. “InvITs are complex products and many smalltime investors might not be able to understand risks.
However, an unintended consequence of this rule has been poor liquidity.Sebi should consider lowering the entry size to at least Rs 2 lakh or Rs  5 lakh so that more and more investors can participate,” said a banker.There has been a lot of talk about allowing the Employees´ Provident Fund Organisation (EPFO) to invest in the InvIT space.Sources say while Sebi has expressed no concerns about the proposal, the Ministry of Labour and Employment is yet to take a call.
The Business Standard, New Delhi, 26th December 2017

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …