Budget 2014: What PE, VC fund managers are looking forward to

Private equity industry is looking forward to getting clarity on retrospective taxation in the upcoming Union Budget to be announced on Thursday by the new government. Fund managers expect a pass through status for all Alternative Investment Funds (AIFs) in terms of taxation. Also, they want the government to avoid double or multiple level taxation and say that the confusion around retrospective amendments should be removed.

Here are some views from fund managers. 

Niren Shah, Managing Director, Norwest Venture Partners:

Expectations on the privatisation side are running very high and there isn’t too much space from a fiscal deficit standpoint. Secondly, we are expecting a lot more progress on the GST because that should greatly improve everything from price hikes to efficiency and also multiple taxation. Thirdly as private equity players or venture capitalists, the government needs to be very clear on retrospective taxation. Telling an investor that the way you are doing business for the last five years is going to change, hence retroactive kind of issue is not there in other countries. It also creates a lot of instability.

Satish Mandhana, Managing Partner & Chief Investment Officer at IDFC Alternatives:

The first recommendation for the industry is the pass through status for all AIFs. Ultimately, the beneficiary has to pay the tax and it creates an opportunity for AIFs to be able to get more domestic funding support. There is a huge demand from the industry to make pass through AIFs than only making the venture capital as a pass through.

The second thing is that SEBI registered funds should be exempt from lock-in provisions which normally come into play for promoters and other people.

Thirdly, we have made a demand that under the GAAR, provisions need to be clarified without leaving any doubts or harassment from income tax officers later on. GAAR has to be acted upon prospectively and not retrospectively. The provisions need to be grandfathered.

From an infrastructure investments point of view, we have requested for single point status taxation for infrastructure equity trusts which are equivalent to REITs. We have sought for a single-point taxation at a concessional rate.

Khushru Jijina, Managing Director, Piramal Fund Management:

The market is expecting clarity on REIT regulations in the upcoming budget. Two tax clarifications are critical for REITs to succeed in the Indian context – the first, a one-time break (for both capital gains and a stamp duty waiver) to enable developers to transfer assets from their corporate balance sheet to new SPVs that can then be listed as REITs and the second, a dividend tax exemption for dividends paid to REIT unit holders.

Darius Pandole, partner, New Silk Route:

The new government will need to balance the imperatives of encouraging domestic demand and stimulating growth, whilst keeping the fiscal deficit and inflation under control. A prerequisite for domestic growth is encouraging investments into Indian infrastructure. This would require increasing the availability and reducing the cost of long-term funding through dedicated infrastructure debt funds, fiscal incentives and encouraging PPP models to improve on-ground project execution.

The government should focus on developing domestic capital pools for private equity and venture capital. The main sources of domestic private equity and venture capital in most countries are domestic capital pools such as pension funds, insurance companies and endowments. In India these sources are constrained by regulations that need to be liberalised.

Remove hurdles to PE and VC exits that arise due to lock in of shares in any way. Any liberalisation that will make it easier to invest in and exit from Indian equities will be welcome. Permit pass-through status to all categories of AIFs.

The government would need to define a stable tax and regulatory environment.  Proposals like retrospective taxation of offshore transactions have sent wrong signals to investors and increased the uncertainty related to investing in India.

Vamesh Chovatia, managing director at New Enterprise Associates:

Clarity with regards to tax pass through status and  residence status will give confidence to investors to bring money on the table. From a private equity investor point of view, I would expect ease in regulations, ease in bringing in capital and ease in ability to take my capital out. As long as issues like retrospective taxation do not come in, we are in for a good run as an investor. Opening up FDI will be lot more calibrated.

Avnish Mehra, director, Advent India PE Advisors:

With Modi government coming in, all the stakeholders will have expectations especially around taxation and clarity on FDI. The biggest thing where everybody wants clarity is retrospective taxation.

Brahmal Vasudevan, Founder and Chief Executive Officer, Creador:

I think the biggest thing the government can do is focus on rebuilding the economy. We need to get growth back to 6-7 per cent per year which will stimulate the whole country and support growth for various sectors. If this happens stress on banking sector will also reduce as businesses can start to look to refinance and repay problematic loans.

Government will clearly need to find way to infuse capital into state banks. It will be good if they opened this up more to private capital which can accelerate the improvement in these banks.

(Edited by Joby Puthuparampil Johnson)

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