Government likely to start taxing anonymous foreign fund inflows

Government likely to start taxing anonymous foreign fund inflowsAccording to market analysts, the central government will soon start taxing the inflow of anonymous foreign funds in to the stock market.

They expect the investments through participatory notes into the Indian stocks to slowdown if the government introduces the so-called General Anti-Avoidance Rule (GAAR) next month.

Finance Minister Pranab Mukherjee has proposed the GAAR as part of the union budget presented on March 16 for the year starting on April 1, 2012. The GAR is aimed at avoid the aggressive tax avoidance schemes that exploit the liberal tax laws in investments between countries like India and Mauritius.

Foreign portfolio investors that are registered with the Indian market regulator issue p-notes. They can also be issued by their sub-accounts for foreign investors, who often invest in the scheme anonymously.

These p-notes often avoid paying taxes in India but the introduction of GAAR would impact the investments in the instruments due to introduction of taxes. Experts say that the proposal could result in shutting down the P-note to invest in India.

The benchmark index of the Bombay Stock Exchange (BSE), Sensex closed 1.8 percent lower on Monday amid uncertainty over the taxing proposal.