India may soon roll back a plan to impose an additional levy on foreign investors, a government official said about the decision that will help stem a slide in local equities.
The government is working on steps to give cushion to the economy, the official told reporters, asking not to be identified as a decision is yet to be announced. That may include an exemption to foreign portfolio investors from a tax on super rich announced in the budget.
Finance Minister Nirmala Sitharaman had proposed increasing the effective tax rate on individuals with taxable annual income of above 20 million rupees ($283,000) by about 3%, and for those earning above 50 million rupees by 7%. Foreign Portfolio Investors became an unintended target of the move.
The tax proposal, along with a lack of measures to boost the economy in the July 5 budget, led to foreigners withdrawing more than $3 billion from Indian shares, putting pressure on stocks and the rupee. The S&P BSE Sensex and NSE Nifty 50, India’s key equity indexes, erased declines and rose as much as 0.5%.
Sitharaman had said earlier that FPIs registered as trusts may consider the option of registering as companies to escape the higher tax. However, the conversion would have required several changes to the tax law.