Government should come out with a detailed policy on how to remove the existing ‘anomalies’ in the bond market

Suggesting uniform tax treatment for all investors, Securities and Exchange Board of India (SEBI) Chairman U. K. Sinha, on Saturday, said the government needed to come out with a detailed policy on the matter to remove the existing ‘anomalies’ in the bond market.

At present, tax rates vary for entities making investments in bonds.

Mr. Sinha said the more difficult issue pertained to tax treatment or the withholding tax for investors in bond market.

Noting that there were ‘certain anomalies’, the SEBI chief said the level of withholding tax for an FII investing in infrastructure bonds was different from that of others.

“All that we have asked the government is that try and reconcile it because if you are looking for long-term and big money, especially for infrastructure companies, so long as the anomalies exist people will hesitate to invest. That is the point we are making,” Mr. Sinha told reporters here on the sidelines of a summit here.

The withholding tax is 5 per cent in some cases and 20 per cent in other cases.

Emphasising that procedures had been simplified for the corporate bond market, he said SEBI was in dialogue with industry to encourage them to come out with more issuances.

“... there have been some positive progress but a lot of ground needs to be covered. The matter is under consideration in the forum of regulators and the government. I am hopeful that some progress will come in that,” Mr. Sinha said.

On corporate governance, the SEBI chief said the regulator had looked at all qualified financial statements in 700 instances. “The 700 such reports came to us through the stock exchanges and 400 such cases we have referred it for rectification... Now there is a pressure on corporates that somebody is effectively looking at the financial statements,” he noted.

Responding to a query on sovereign wealth funds not showing much interest in government securities, he said the situation needed to be looked at for some more time.

At present, $10 billion is the maximum investment limit allowed for entities such as sovereign wealth funds in government securities.

On e-voting facility for shareholders, Mr. Sinha said listed companies had to follow SEBI norms. Recently, the Corporate Affairs Ministry extended the time till December this year for companies to mandatorily have e-voting facility under the new Companies Act.

Norms for REITs

To give a boost to capital markets, SEBI has asked the government to provide clarity on tax benefits for new products such as REITs (Real Estate Investment Trusts), as also for Infrastructure Investment Trusts and for debt securities.

“SEBI will soon finalise norms for REITs, but is awaiting clarity on taxation issues,” Mr. Sinha said, while adding that the regulator wanted such trusts to get tax pass-through status.

The regulator, he said, is close to framing new rules for Infrastructure Investment Trusts but there needed to be clarity on withholding taxation issues for such products.

These new products would allow investors to invest in specific products linked to real estate projects and infrastructure projects, while providing necessary safeguards.

Besides, these products would help the corporates raise significant amounts of capital for their projects.

The SEBI Chairman further said that there was a need to work on increasing the base of corporate bonds.

He also stressed on the need to encourage SMEs (Small and Medium Enterprises) to get listed and get benefited from the capital markets.

At present, the listed SME market capitalisation in India stands at over Rs.7,500 crore, while 65 companies have got listed on SME Platform of exchanges.

About the new regulations, Mr. Sinha said that SEBI would soon put in place norms for crowdfunding, which would allow start-ups to tap new platforms to raise funds.

Besides, there are already norms in place for Alternative Investment Funds (AIFs), such as venture capital and angel investors.

Ponzi scheme

Armed with powers given through an ordinance to take on investment frauds, Mr. Sinha said he hoped it would soon become a permanent law to ensure continued clampdown against illegal investment schemes.

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