A panel on sustainable finance, set up by the IFSC Authority (IFSCA), has called on the government to consider the abolition or reduction of a withholding tax on sustainable debt products to improve the flow of funds for such projects. At present, the International Financial Services Centre (IFSC) in Gujarat imposes a 4% withholding tax on the interest earned on debt investments.
“Further reduction or abolition of withholding tax on ESG-labelled debt products will help in incentivising sustainable and green investments through IFSC,” said the 10-member panel, headed by former environment secretary CK Mishra, in a report submitted to the IFSCA.
The panel has also suggested that a voluntary carbon market be set up in India to help companies reduce greenhouse gas emissions at a lower price. A regulatory sandbox for green fintech firms should be put in place to boost investments in green technology through the IFSC, it has said.
Carbon markets are essentially trading systems in which carbon credits are sold and bought. One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided, according to the UNDP. Voluntary carbon markets refer to the issuance, buying and selling of carbon credits, voluntarily, says the UN agency. The combined value of the world’s carbon markets reached $272 billion in 2020.
The panel has also called for developing a framework for transition bonds, enabling de-risking mechanisms and facilitating the creation of a global climate alliance, among others. It has pitched for the use of innovative instruments such as catastrophe bonds, municipal bonds, green securitisation and blended finance, among others, to boost sustainable financing in India.
Given the importance of MSMEs in economic development, the committee also proposes setting up a dedicated MSME platform for sustainable lending.
To boost capital flows into the IFSC, the committee has pushed for the need to enable aggregation facilities, impact funds, green equity, etc. in IFSC.