The new Modi-led Government should come up with a detailed medium-to-long term policy to remove the “tax anomalies” that hinder growth of the Indian debt markets, SEBI Chairman U.K.Sinha has said.
Tax treatment of the various debt raising routes available to an Indian corporate are vastly different, Sinha said adding that the Government must try and reconcile them at the earliest.
“If you are looking for long term money and big money especially for infrastructure companies, so long as these anomalies exist, people will be hesitant to invest”, Sinha said at Skoch Summit in the capital.
Sinha pointed out the existence of anomalies on the withholding tax on foreign institutional investors investments in infrastructure bonds floated by Indian entities.
Aspects like what should be the right level of withholding tax on FII investments in infrastructure bonds, should there be different rules for domestic institutions and foreign investors are under SEBI’s consideration, he said.
As part of its efforts to prop up investor interest in debt markets, the Finance Ministry is already working on plans to bring uniformity in withholding tax.
Currently, Indian companies raising external commercial borrowing are required to withhold tax at 5 percent on the interest paid to foreign lender.
In the case of infrastructure and non-infrastructure bonds, the withholding tax is 5 percent and 20 percent respectively.
The upcoming budget could see a step towards having an uniform withholding tax on all debt market issuances of Indian entities.
This could buoy sentiment in the Indian debt markets and increase flow of foreign funds into this market, say experts.