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Venture capital guidelines up for review

Mumbai, Dec. 4: The Securities and Exchange Board of India (Sebi) plans to bring about a few modifications in its guidelines for venture capital funds, pertaining to inflow of foreign exchange and exemption from taxes.

This was revealed by Sebi chairman G. N. Bajpai while addressing the Global Asian Venture Forum 2002 here today. He said the regulator’s move came after representations received from VCs on this front.

Sebi plans to approach other regulators in this regard, including the Central Board of Direct Taxes ad the Reserve Bank of India (RBI), as these issues come under their purview as well.

Bajpai spoke about various measures that the regulator has adopted to promote the inflow of venture capital funds into the country.

In fact, Sebi’s moves come in the backdrop of the K. B. Chandrasekhar committee’s report on venture capital. The committee had observed that the regulatory, tax and legal environment should play an enabling role and that resource raising, investment, management and exit should be as simple and flexible as needed and driven by global trends.

There are currently three sets of regulations dealing with venture capital funds—the Sebi (Venture Capital Regulations) 1996, Guidelines for Overseas Venture Capital Investments issued by the department of economic affairs in the ministry of finance, 1995, and CBDT Guidelines for Venture Capital Companies, 1995, later modified in 1999.

“The need is to consolidate and substitute all these with one single regulation under Sebi to provide for uniformity, and a hassle-free single window clearance,” the panel had said.

The committee also came out against the double taxation applicable to the industry, adding the regulator should follow the well-established norms applicable to mutual funds, which, once registered with Sebi, are automatically entitled to taxes at one point only.

The committee observed that venture capital should become an institutionalised industry and in view of increasing global integration and mobility of capital, Indian venture capital funds as well as venture finance enterprises should have global exposure and investment opportunities.

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