State Bank of India (SBI) and GIFT City Tax Holiday
State Bank of India (SBI), the nation's largest lender, has requested an extension from the Centre for its 10-year tax holiday at its GIFT City unit, which is set to expire next year.
Background
- SBI was an early entrant in establishing operations at the International Financial Services Centre (IFSC) in GIFT City.
- The tax holiday's conclusion means SBI will need to start paying corporate tax at rates similar to its domestic operations.
- SBI's GIFT City operations have grown significantly, with its balance sheet reaching approximately $10 billion, driven by an increase in foreign currency borrowing.
Implications of Tax Holiday Expiry
- Without an extension, SBI might move parts of its business offshore.
- Early entrants like SBI spent initial years with limited activity, losing valuable tax incentive time.
Expert Opinions
- Extending tax incentives would acknowledge their contributions, ensure competitive parity, and prevent migration of business activities offshore.
Industry and Government Considerations
- Other banks like Bank of Baroda and Yes Bank face the same issue, with their tax holidays expiring in 2027.
- The government is actively considering industry requests, with potential announcements in the upcoming Budget.
Current Regulations and Challenges
- IFSC entities can claim a 100% corporate tax exemption for any 10 of their first 15 years of operation.
- Some experts advocate for a longer tax holiday to establish globally competitive financial businesses.
GIFT City Developments
- The city has experienced strong growth over the past 12-18 months, aided by an enhanced regulatory framework under the International Financial Services Centres Authority (IFSCA) since 2019.
- The IFSCA recently registered over 1,000 entities in various sectors, including banking, reinsurance, and asset management.
- Banks in GIFT City have collectively disbursed over $100 billion in foreign currency loans; currently, 35 banks operate there.
Conclusion
- The nearing expiry of the tax benefit could lead to businesses relocating offshore, potentially affecting IFSC's growth.
- Experts recommend long-term tax certainty to align with established hubs such as Dubai and Singapore.
