Govt needs to remove tax anomalies in bond market

Written by fe Bureau | New Delhi | Updated: Jun 22 2014, 06:50am hrs
SebiSebi chairman UK Sinha (R) arrives for a summit organised by Skoch Consultancy Services in New Delhi on Saturday. PTI
The government needs to prepare a detailed policy to remove anomalies in the bond market and provide clarity in tax treatment for Indian corporates looking to raise debt, Securities and Exchange Board (Sebi) chairman UK Sinha said on Saturday.

We believe we must have clarity in tax treatment. The tax treatment of various routes available to an Indian corporate is vastly different, Sinha said on the sidelines of an event in New Delhi. All that we have asked the government is that try and reconcile it, because if you are looking at the long term and big money, especially for infrastructure companies, people will hesitate to invest as long as the anomalies exist. That is the point we are making, Sinha said.

As reported by FE earlier, the finance ministry is already working on plans to bring about uniformity in withholding tax as part of its planned capital market reforms for FY15. Currently, companies raising ECBs are required to withhold tax at 5% on the interest income of the overseas lender. The withholding tax in case of issuers of infrastructure and non-infrastructure bonds (where FIIs are allowed to invest) is 5% and 20%, respectively. The proposal is to make the tax uniform at 5% for all the three categories.

Sinha said such clarity was required, as Sebi was close to framing new rules for infrastructure investment trusts. These trusts, modelled on real estate investment trusts in other countries, would allow investors to invest in specific products linked to real estate projects and infrastructure projects, while providing necessary safeguards.

We are hoping that we will be able to implement it (REITs regulations) very soon. In developed markets like the US, UK, Singapore and Japan, the REITs have been a significant way for investors to take advantage of growth in the real estate industry, he said.

Sinha said REITs have been a significant vehicle for global investors and Indian markets can also soon tap this opportunity, as Sebi was ready with guidelines that would be announced immediately after tax clarity from the government.

About the need to expand corporate bond markets, Sinha said necessary infrastructure for this was already in place and the related regulations have been simplified.

Speaking on fly-by-night chit funds and other Ponzi schemes, Sinha said he hoped that the ordinance that gave Sebi the power to take on investment fraud would soon become a permanent law, as a large number of illegal deposit-taking schemes were still defrauding investors. The ordinance, which has been promulgated thrice, gives Sebi sweeping powers including attachment of properties, launch of recovery proceedings, seeking call data records to investigate cases and ordering search and seizure against manipulators and fraudsters.

Despite all measures we have taken in this country, there is still a large number of unregulated fund-raising activities, unregulated deposit taking activities under various names like chit funds, nidhi schemes, housing schemes and also collective investment schemes (CIS). That menace is still not fully controlled, Sinha said, adding that the regulator has taken action in more than 25 cases since the ordinance was first promulgated.