‘FPI tax issues put divestment at risk’

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  1. The government may miss its disinvestment target of ₹1.05 lakh crore that has been set for the current financial year.Disinvestment is defined as the action of an organisation or government selling or liquidating an asset or subsidiary.
  2. The target may be missed as foreign portfolio investors(FPIs) could stay away from such share sales if the ongoing tax concerns are not resolved soon.
  3. In the Union Budget 2019-20,the Finance Minister has introduced a surcharge for individuals earning more than ₹2 crore. 
  4. However,FPIs will be affected by the proposal as bulk of such investors structure themselves as trusts or a Limited Liability Partnership(LLP).
  5. These investors are not recognised as a corporate entity by the Income Tax Act.Hence,FPIs are taxed as per the individual tax slabs based on their earnings.
  6. Surcharge is an additional charge or tax levied on an existing tax.Unlike cess,which is meant to raise revenue for a temporary need,surcharge is usually permanent in nature.
  7. Surcharge is levied as a percentage of the income tax payable as per normal rates.The revenue earned via surcharge is solely retained by the Centre and is not shared with States.Collections from surcharge flow into the Consolidated Fund of India.

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