India fears losing out on tax on foreign listings

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India fears losing out on taxes on listings-sources.

Some startups want to call abroad for better valuations.

NEW DELHI, Aug 16 : India will take around six months to announce rules allowing companies to list overseas, taking longer than some expected as the Finance Ministry irons out issues related to taxation, two government officials and four industry sources told Reuters.

The delay is likely to dampen hopes of investors like Tiger Global, Sequoia Capital, Lightspeed and many Indian startups that urged Prime Minister Narendra Modi https: reut.rs 3 AISors to swiftly announce rules governing foreign listings that were given the go-ahead almost a year ago last month.

Two senior government officials said the rules would be announced only with the February federal budget as there was no decision yet on how the government should tax retail investors and international traders when they trade Indian companies listed abroad.

An important concern is to ensure that international venture capital and foreign investors pay an equal long-term capital gains tax - around 10% - even if they exit an Indian company listed on foreign bourses like Nasdaq, said the six sources familiar with these private discussions.

Three industry sources said that to convince the Indian government, some investors, merchant bankers and startups have suggested that an investor's exit from an Indian company that may list abroad can be taxed as per Indian law if that investor has a significant shareholding of 10-20%.

A senior government official said: We haven't decided yet in the structure of which one would want to get tax as any investor exits, does not matter where it is planning to list.

Another concern the Government was trying to address was whether it can gain tax from foreign investors trading in an Indian stock that is listed overseas, but has decided to exempt such transactions, said the two government officials.

The rules though said that Indian nationals who make profits from such trades abroad will be liable to face taxation as per local laws, they added.

The debate comes as local firms see enhanced prospects that they can achieve big valuations with domestic listings following the impressive debut https: www.reuters.com technology ANT-backed - zomato-jumps - 53 - above-offer - price-indian-market-debut - 2021 - 07 - 23 on Indian bourses of Ant Group, an ant-backed Indian food delivery firm Zomato valued the firm at $13 billion.

But many investors and startups like the option of a foreign listing, as they say companies get better access to capital and higher valuations. Some 22 investors and top Indian startups urged PM Modi in July to expedite the overseas listing rules, calling it an unfinished reform agenda.

Further delay in rules will affect the startup ecosystem as many companies are at the brink of deciding their foreign listing plans, said one venture capital sector source.

Its opponents include Swadeshi Jagran Manch - the economic wing of Modi's ruling party - who fears such listings will mean less Indian regulatory oversight of domestic firms and could hit the growth ambitions of capital markets in India.

However, Indian investors won't be given same access to these companies if they only list abroad, the group's co-convener Ashwani Mahajan told Reuters.