Issue to tax P-notes clarification required

 The Indian stock markets were left agitated over the issue that foreign investors could be subject to new taxes proposed in the recent budget. However, the Finance minister has clarified that it will examine the tax liability of FIIs and not participatory note (P-note) holders. It is important to note here that while FIIs are registered with SEBIs and can directly invest in the Indian markets, P notes are instruments  (issued by FIIs) to let foreign investors  test the markets.
The latter avoids the huge registration costs in case the investments are not heavy. The markets welcomed the news. But the issue is far from being settled. This is because FIIs are still under the scanner for tax liabilities. If these convert into actual taxes, there are strong chances that FIIs will pass it to end clients - P note holders. Post this clarification, we hope such a scan will filter out speculative investments and curb volatility. But having said that, the Government needs to articulate its policies better. The lack of clarity and resulting panic can cause us to lose genuine investors as well as disturb the markets.