Relevance: GS-3: Infrastructure; Awareness in the fields of IT.
Key Phrases: GIFT City, International Financial Services Centre, Social infrastructure, Capital markets, Offshore insurance, Offshore banking, Asset management, Tax exemption, GST, Security Transaction Tax.
Why in News?
- In the years to come, GIFT City in Gandhinagar will be a force to reckon with in the field of financial technology, data security and finance, which will make the entire country proud.
Gujarat International Finance Tech (GIFT) City:
- GIFT, located in Gandhinagar is India’s first International Financial Services Centre (IFSC).
- It was conceptualised in 2007 with the objective to create a globally-benchmarked financial centre that can compete with the renowned financial centres in London, Tokyo, Shanghai, Paris, Singapore and Dubai.
- The actual groundwork of the project started in October 2011 but the global meltdown following the Lehman crisis adversely impacted the project.
- It was a joint venture between the Gujarat Urban Development Company Ltd and Infrastructure Leasing and Financial Services Ltd (IL&FS).
- The first multi-storeyed structure was inaugurated in January 2013.
- GIFT is a smart city in every sense with various first-in-the-country initiatives in the field of urban infrastructure.
Overview of GIFT City:
- Spread over 886 acres, GIFT City consists of a multi-service Special
Economic Zone (SEZ), which houses
- India’s first International Financial Services Centre (IFSC)
- 261 acres have been demarcated as SEZ area for IFSC.
- Exclusive Domestic Tariff Area (DTA).
- 625 acres have been marked as DTA.
- India’s first International Financial Services Centre (IFSC)
- The plan is to develop 62 million square feet of built-up area,
consisting of
- Commercial space (67 per cent),
- Residential space (22 per cent)
- Social space of 11 per cent.
- The social infrastructure in the city includes a school, medical facilities, a proposed hospital, GIFT City business club with indoor and outdoor sports facilities.
- It also includes integrated well-planned residential housing projects making GIFT City a truly “Walk to Work” City.
International Financial Services Centre (IFSC):
- An IFSC caters to customers outside the jurisdiction of the domestic
economy. Such centres deal with
- flows of finance,
- financial products and
- services across borders.
- IFSC was established as a statutory authority on April 27, 2020 under the International Financial Services Centres Authority Act, 2019.
- It’s headquartered at GIFT City, Gandhinagar.
- An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of Financial Institutions (FIs)to India by offering a business and regulatory environment that is comparable to other leading international financial centres like London and Singapore.
- It would provide Indian corporations with easier access to global financial markets.
- IFSC would also complement and promote further development of financial markets in India.
- IFSC provides services related to
- Capital markets
- Offshore insurance
- Offshore banking
- Asset management
- Aircraft and ship leasing
- Ancillary services.
- It houses two international stock exchanges with a combined average daily trading volume of over $11 billion.
- Soon, an international bullion exchange is also going to be launched.
Do you know?
- Special Economic Zone (SEZ)
- Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and is deemed to be foreign territory for the purpose of trade operations and duties and tariffs, with economic laws different from a country's typical economic laws.
- So long as businesses earn more foreign exchange than spend over each five-year stretch, units located in SEZ can freely import what they need (i.e., sans permit, duties, and customs checks) and also enjoy a clutch of tax exemptions, such as zero GST on domestic supplies.
- As SEZs operate like offshore zones, any sales of their products and services in the Indian market face regular import tariffs.
- In India, the Special Economic Zones (SEZs) Policy was announced in 2000.
- SEZs in India functioned from 2000 to 2006 under the provisions of the Foreign Trade Policy and fiscal incentives were made effective through the provisions of relevant statutes.
- The Special Economic Zones Act was passed in 2005.
- The government constituted a committee headed by Shri Baba Kalyani, in 2018 to study the existing SEZs of India and prepare a policy framework to adopt strategic policy measures.
- Recommendations of the Baba Kalyani committee
- Rename SEZs in India as 3Es- Employment and Economic Enclave
- Framework shift from export growth to broad-based employment and economic growth
- Separate rules and procedures for manufacturing and service SEZs
- Ease of Doing Business (EoDB) in 3Es such as one integrated online portal for new investments
- Extension of Sunset Clause and retaining tax or duty benefits
- Unified regulator for IFSC
- Dispute resolution through arbitration and commercial courts
- The Centre proposes to rebrand Indian SEZs as ‘development hubs’ under the Development of Enterprise and Service Hubs (DESH) bill.
- It will overhaul the existing Special Economic Zone law of 2005, aiming to revive interest in SEZs and develop more inclusive economic hubs.
Do you know?
- The banking, capital markets and insurance sectors in IFSC which are regulated by multiple regulators - the RBI, SEBI, and IRDAI will be unified under the IFSC authority.
- Securities Transaction Tax (STT)
- It is a type of turnover tax where the investor is obliged to pay a tax on the total sum received or paid in a transaction done through an exchange.
- STT is not applicable for commodities and currency transactions and on transactions outside of the exchange.
- It is applicable to securities like shares, debentures, bonds, mutual funds, government equity securities, derivatives, etc.
- Commodity derivatives are financial instruments whose value is based on underlying commodities, such as oil, gas, metals (gold, silver, and copper) and minerals.
- Commodity Transaction Tax (CTT) was introduced to tax commodity trading in India where both parties—buyer & seller of contract—will be taxed depending on the amount of the contract size. CTT is similar to the Securities Transaction Tax (STT).
Why GIFT City is different?
Government of India and Government of Gujarat have provided a slew of incentives to the entities setting up the GIFT City.
This includes:
- Exemption of registration fee and stamp duties.
- 100% tax exemption for 10 years.
- MAT / AMT @ 9% of book profits applies to Company / others setup as a unit in IFSC.
- Interest income paid to non-residents on:
- Money lent to IFSC units not taxable.
- Long Term Bonds and Rupee Denominated Bonds listed on IFSC exchanges taxable at a lower rate of 4%.
- Transfer of specified securities listed on IFSC exchanges by a non-resident not treated as transfer - Gains accruing thereon not chargeable to tax in India.
- No GST on services:
- Received by unit in IFSC.
- Provided to IFSC / SEZ units, offshore clients.
- No GST on transactions carried out in IFSC exchanges
- State Subsidies – Lease rental, electricity charges etc.
- Exemption from Security Transaction Tax (STT), Commodity Transaction Tax (CTT), and stamp duty in respect of transactions carries out on IFSC exchanges.
Tax and Regulatory Changes Proposed by the Union Budget 2022
To further the objective of promoting and establishing IFSCs as global financial services hubs, the Union Budget 2022 has proposed further measures and exemptions. This includes:
- Income of non-residents arising on account of the transfer of offshore derivative instruments and over-the-counter derivatives entered into with an offshore banking unit located in an IFSC.
- Income arising to non-residents from portfolio investments and financial products, managed or administered by portfolio managers in an offshore banking unit located in an IFSC.
- To promote the setting up of ship leasing, the budget has
proposed:
- Exemption of royalty and interest income paid by a unit in an IFSC to non-residents on account of leasing ships/ocean vessels (including engines or any part);
- Capital gain income arising to a unit in an IFSC from the transfer of a ship/ocean vessel (including engines or any part) which was earlier provided on lease to a person to be eligible for tax holiday deduction.
- In terms of regulatory announcements, the budget has
announced that
- World-class foreign universities and institutions will be set up to offer courses in GIFT-City, free from domestic regulations (apart from those issued by the IFSCA).
- For the settlement of disputes, the establishment of an International Arbitration Centre has also been proposed.
Conclusion:
- The Government of India’s recent announcement to permit campuses of foreign universities in GIFT IFSC, free from domestic regulations, has created a buzz globally. Many Australian, UK and US-based universities have shown an interest in establishing their presence in GIFT IFSC.
- Despite the challenges posed by the Covid-19 pandemic globally, GIFT City continued to attract domestic and international players.
- In the years to come, GIFT City will be a force to reckon with in the field of financial technology, data security and finance.
Source: Indian Express
Mains Question:
Q. GIFT City has the potential to play very vital role in the field of financial technology, data security and finance. Discuss. (250 words).
