Sebi made nodal agency for venture funds

Sebi made nodal agency for venture funds
ENS ECONOMIC BUREAU

MUMBAI, FEB 29: The Securities and Exchange Board of India (SEBI) will be made the single point nodal agency for registration and regulation of both domestic and overseas venture capital funds. Finance Minister Yashwant Sinha said the tax laws and SEBI guidelines were being formulated in accordance with this decision.

``The liberalisation will give a strong boost to non-resident Indians to invest in the capital, knowledge and enterprises in ventures within the country,'' he said.

Reacting to the proposal, Chairman of Securities and Exchange Board of India (Sebi), D R Mehta said the announcement on Sebi being the sole regulator and nodal agency for venture capitalists was significant as it would serve to remove confusion from the minds of investors and leave Sebi to manage its pace.

Exempting venture capital funds from seeking approval of tax authorities and the one-time tax payment of 20 per cent, he said, were substantial changes made to the original proposals which would facilitate venture capitalists putting their money into start-ups.

Welcoming the increase in the foreign investment portfolio limit from the current 30 per cent to 40 per cent, Mehta added that this would pose no danger to threats of takeover, as this has to be approved at a general body meeting. "If they do not like it, then then can always turn it down and there is no apprehension in this case."

On the 10 percentage point increase in the dividend-tax of companies, Mehta said that the government needed to raise the finances and this was one method of doing it. The dividend tax on debt funds and doing away with section 54EA and EB, he held to be similiar measures by the government to broadbase the tax base. The government intention to reduce stakeholding in banks and allowing them to access the market for capital was a positive measure he said, adding that banks were allowed to do it at present too.

As expected mutual funds are up in arms against the rather retrograde measures for the sector. The dividend tax on debt funds was expected by the industry in response to the clamour from banks for a level playing field. But the annoucmeents on sections 54EA and EB have come as a total surprise to the sector, which did not anticipate it in any way. The net result of the two would a shift in funds flow to growth funds and balanced funds and capital appreciation options, while investors would explore other options for tax saving.

Niamatullah, chief of SBI Mutual Fund described the budget as a "non-event" adding that no major steps taken to contain the high fiscal deficit. "There is no justification in raising the tax on dividend by companies to 20 per cent," he said, observing that it would impact on their bottomlines and discourage them from paying high dividends.

Ajay Srinivasan of Prudential-ICICI Mutual Fund said that most of the proposals relating to the capital markets was expected. He too noted that nothing had been done about the deficit while the finance minister had been silent on initiatives for road sector and privatisation of public transport system.

Says Nikhil N Khattau, CEO of Sun F&C Asset Management, "I am not despondent. The Budget was not as tough as he had said. It was good expectations management". "He has tried to rationalise the tax structure which I think is a good move. Seven and a half per cent tax on exports is a good start.

"As for software exporters, seven and a half per cent tax is not too much given the growth rates they have seen. The signal the finance minister has given is that the software industry has had protection for too long and that there will be no free lunches in future.

"On fiscal deficit, he has earmarked the proceeds of disinvestment towards repayment of debt. Reduction in general provident fund rate is also a good move. This should move the yield curve. "The provident fund rates were seen as an impediment to lower interest rate regime, this reduction after the reduction in provident fund rates earlier should help the industry, helpprojects pick-up and buoy stock markets."