Sebi for relook at tax on gains from corporate bonds

Mumbai: Sebi Chairman UK Sinha today said the regulator will put in place an information repository for the primary bond markets from next month and called for a relook at tax on income from bond market investment.

In its efforts to increase the liquidity in the corporate bond market, Sebi had, in July, put in place an information repository on the secondary bond market. This would help investors to take more informed decisions.

"A complete information repository for corporate bonds has been made available from July for secondary markets, and from October we are going to make it available for primary markets as well," Sinha told a seminar on corporate bond markets in BRICS organised by the Finance Ministry and CII.

Sinha also admitted that there is a need to relook at the tax on income from bonds.

"Tax on bond gains is an issue that needs to have a relook," he said, adding that the issue of stamp duty could be resolved once the GST is in place.

With the rising incidence of bond issuers defaulting on their obligations to bondholders, Sinha said the recently legislated Bankruptcy Code can go a long way in protecting their interests.

"A lot of positive steps have been taken to protect the bondholders. However, I must add that a lot needs to be done to enhance liquidity in the bond market. In areas like market-making and using corporate bonds as collaterals, are among things which are needed," the Sebi chairman said.

On the still nascent corporate bond market, which despite decades-long effort by the government and the regulators still lacks depth, Sinha said with the improving balance sheets of government, especially the Central government, this should change.

"I am seeing a serious move towards fiscal discipline which is a very healthy move, and this should help develop corporate bond market," Sinha said.

Currently, the government is the biggest borrower from the market, and banks and other financial markets players have to mandatorily invest in government bonds, thereby limiting the scope for developing a corporate bond market.

As a result after nearly two decades of concerted efforts, the corporate bond market is only around Rs 20 trillion due to limited liquidity in the market.

While banks have to compulsorily invest 21 percent of their total deposits in Central government bonds, insurers have to invest as much as 50 per cent of their investible funds in government securities and mutual funds are also mandated to investment in them.

While this is aimed at containing the government interest cost, this also crimps the scope for investing in any other better yielding instruments.