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AIPAC Pre-Budget 2018-19
- 1. IVCA’s Pre-Budget 2018-19 Representation & AIPAC 3rd Report Presentation to Ministry of Finance: Nov -Dec 2017
- 3. 86 45 65 95 138 90 0 40 80 120 160 200 FY'16 FY'17 Q1'18 Total VC/ PE investments of ₹1.5 Lakh Crore in FY’18 (70% over last year) FY'13 FY'14 FY'15 Note: No filter on deal size has been applied to the overall figures 1.Till H1’F18 2.FY’18 estimate based on run rate deal value, excluding mega deals like Flipkart & Paytm infusions Source: VCCEdge Annual PE/VC investment in India (in ₹ ‘000 Cr) INCLUDES RE, INFRA DEALS (in ₹ ‘000Cr) 1% 4% 4% 8% 19% • Contribution of AIF Investments has been raising, with AIFs contributing to 19% of VC/PE Investments • Investment by AIFs increased by 55% in FY17 % Contribution by AIF’s of all VC PE Estimate H1’18 1532 Strong Growth un Investments with over $140 bn from VC / PE Capital since 2005 3 FY2016 PE/VC Deals (% of GDP) India – 0.93% China – 0.75%
- 4. 1,437 13,110 22,612 38,879 84,304 1,16,085 39 95 130 207 288 366 0 80 160 240 320 400 0 30,000 60,000 90,000 1,20,000 1,50,000 FY'13 FY'14 FY'15 FY'16 FY'17 H1'FY18 # of AIFs (RHS) Potential for AIF pools to increase to ₹3 Lakh Crores by FY20 CumulativeAnnual funds raisedby AIFs in India Growth boosted by the government’s decision (in 2015) to give “tax pass through” status to AIFs—implyingthat capital gains will be taxed in handsof investors and not the funds Total funds raised: ₹1.16 Lakh Crores Total fund Targeted raise : ₹ 3 Lakh Crore FY'20 3,00,000 Number of AIF’s have doubled in last 2 years; Comingling of “₹” & “$” working; Currently 16% “$” investments in AIFs: growing rapidly AIF Fundraising (% of GDP) 2017 – 0.53% 2020 – 1.60% Cat. I Cat. II Cat. III 4
- 5. Recommendations* of AIPAC III Make AIF the primary structure for VC/PE investment in India of Rupee and Foreign funds Making AIF Reach Full Potential Restore pass-through status for losses at Fund level in AIF Cat I & II Allow management expenses to be capitalized as cost of improvement Attract Foreign Pools: GST is Key Exempt GST applicability on fees collected from on shore foreign pools Certainty on non- applicability of GST on profit sharing arrangements Encourage Development of Domestic Pools Continue good work done by DIPP / SIDBI through Fund of Funds for Start-ups Permit larger charitable and religious trusts to invest in AIFs Permit EPFO to invest in AIFs, in-line with PFRDA Permit Social Venture Funds to Receive CSR Flows Taxation Framework for AIF III: Fastest Growing Pooling in AIF has grew 250% is FY’17 Plays critical role in enhancing public market efficiency & price discovery Certainty in taxation, can spur growth even further to ₹1 Lakh Crores Will increase the ease of Investing and boost VC/PE activity to ₹3 Lakh Crores p.a, with 50% from AIFs. Note: * Select few included from AIPAC-I and AIPAC-II 5
- 6. Roadmap for Future Policy & Market Development 6 Complete New System of Taxation: Unit Based Taxation Innovate New Fund Stuctures: Listed, Permanent Capital Vehicles Accreditation of Qualified Investors Via KYC Digitizing: Performance Data Reporting • Implement a new taxation code, supporting unit level taxation. Through which all the taxes would be paid by way of Tax Deducted at Source (‘TDS’) at the Fund level • This will also help in listing of AIFs • There is an increasing need for vehicles that provide capital to the mid market corporates and small businesses. Especially when bank lending to to mid market corporates and small businesses has been declining with no signs of trend reversal • This and unit bases taxation will provide way for listing for AIFs like REITs and InvITs • Current minimum threshold of ₹1 Cr is working; But a suite of emerging opportunities could require official evaluation of Investor qualification which is completely scalable, hence digital • Ideally a system in long-term should identify and qualify the investor, rather than the investment • Data disclosure to SEBI can be enhanced to include distributions made, in addition to the existing disclosure of commitments, contribution and investments, this can be by vintage year and fund strategy, within category IFSC Pooling • Set up management of funds in IFSC (currently undertaken offshore) can provide substantial contribution growth of Indian financial sector & economy • Presence of professional skilled onshore fund managers can lead to more financial activity, spur in innovation, new trends and strategies
- 8. Annexure
- 9. Key Policy Changes since 2014 is catalysing growth in AIF Over 27 Changes in regulation since 2014 has contributed to acceleratedInvestments… CBDT ▪ Introduction of tax pass-through for Category I and II AIFs • Period of holding reduced from 3 to 2 years for long-term capital gains on transfer of unlisted shares • Characterisation of income from transfer of listed shares and securities as ‘Capital Gains’ • Characterisation of income from transfer of unlisted shares held by Category I and II AIF as ‘CapitalGains’ • Tax withholding for foreign investors in AIFs at ‘rates in force’ • No tax withholding for exempt domestic investors in AIFs • Exclusion for Category I and II AIFs in the notification for exemption on long-term capital gains under section 10(38) • Inclusion of pre-conversion period in determining holding period for convertible debentures/preference shares for computing capital gains • Tax neutrality for conversion of preference shares • Indirect Transfer Provisioning Government becoming LP in Funds • ₹10,000 Cr fund-of-fund for Start-ups • Invested in 58 funds • ₹40,00o Cr NIIF fund-of-fund for Infrastructure • Automatic route for dollar investments in AIFs • Fund of Funds for Start-up launched • Exempted AIF II from 1 year IPO lock-in • Angel Fund rules made pragmatic 9 SEBI RBI • Banks Permitted to invest in AIF I & II DIPP
- 10. Success of AIPAC I & II; Effect of AIPAC III • Focussed on Tax reforms & Unified AIF; with no revenue loss to the Government • 10 major recommendations from AIPAC 1, implemented • Effect: AIF commitments for CY2016 approx. ₹ 33,000 Cr - greater than total commitments raised since inception then AIPAC I (31st Dec 15) • Focussed on Catalysing Capital Flows and ensuring clarity, consistency, and certainty in tax policies • 7 major recommendations from AIPAC II, implemented many still rolling out • Effect: Number of AIF’s doubled to 375 AIPAC II (1st Nov 16) • Focus on the remaining issues; and continue to focus on catalysing capital flows • Focus on remaining major issues from previous AIPACS and clarify issues on GST • Target: Target VC/PE Flows of ₹10 lakh Crores p.a, with ₹3 Lakh Crore pooled in AIFs AIPAC III (29th Nov 2017) The success of AIPAC is represented by the growth of register AIF’s and amount Pooled 27,484 70,267 1,16,085 3,00,000 Pre-AIPAC AIPAC - I AIPAC - II AIPAC - III Total Commitments (₹ Cr) 130 288 366 Pre-AIPAC AIPAC - I AIPAC - II # of Registered AIF’s 4% 8% 19% Pre-AIPAC AIPAC - I AIPAC - II % of Investments by AIF’s