Concept Paper on Finance SEZs


A concept paper on the establishment of finance SEZs, has been submitted by the National Institute of Public Finance and Policy to the Ministry of Finance. The ministry is seeking public comment on the concept paper, which it made available on 17 February 2015.

Key Features

The concept paper identifies capital controls in India together with the prevailing financial regulation and taxation structures as the causes for the "hollowing out" of Indian financial markets, i.e. most of the global trading in India-related financial products takes place in locations like Singapore and Dubai. As a counter to this, and to improve Indian companies' access to overseas funds and fund managers, the paper appears to suggest the establishment of a finance SEZ on a model similar to Hong Kong, where Hong Kong, through its established financial system, acts as a conduit for funds for Chinese companies and as a trading centre for securities issued by Chinese companies.

The concept paper explicitly recognizes that consumers of financial products in financial centres like Singapore not only buy financial products, but also "buy" the regulatory structure of such centres. Indeed, the urgent recast of India's financial laws is one of the cornerstones of the paper. To this end, the paper proposes various measures such as: (a) bypassing the civil court system by establishing a chambers of professional arbitrators to adjudicate financial disputes; (b) modernizing existing courts or setting up new courts with jurisdiction over the finance SEZ to ensure efficient enforcement of arbitral awards; (c) exemption from capital control restrictions under India's Foreign Exchange Management Act, 1999; and (d) introducing financial products such as certain types of options and exchange-traded derivatives, which are not currently allowed in India.

To further improve dispute resolution, the paper recommends establishing an arbitration centre in the finance SEZ on the lines of centres such as the Singapore International Arbitration Centre, and establishing a new regulatory authority specifically for the finance SEZ to subsume the functions performed by financial sector regulators such as the Reserve Bank of India and the Securities and Exchange Board of India.

An important recommendation of the concept paper is rationalizing the taxation structure applicable to the finance SEZ. This includes exemption from securities transaction tax, commodities transaction tax and service tax, and the reduction of minimum alternate tax on units operating in the finance SEZ.

Thursday, 07th Apr 2016, 11:07:46 AM

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