Government Needs to Remove Tax 'Anomalies' in Bond Market: Sebi Chief

Suggesting uniform tax treatment for all investors, Sebi chairman U K Sinha today said the government need to come out with detailed policy on the matter to remove the existing "anomalies" in the bond market.

Currently, tax rates vary for entities making investments in bonds.

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

Noting that there are "certain anomalies", the Sebi chief said the level of withholding tax for an FII investing in infrastructure bonds is 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.

Withholding tax is 5 per cent in some cases and 20 per cent in other cases. "So those have to be reconciled. The government has to come out with a detailed middle to long term policy on this," he added.

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

"Also the problem is with regard to widening the base of investors. Different sectoral regulators have their own requirements about their regulated entities, say pension funds or insurance companies such as to what extent can they invest and what type of instruments they can invest.

"...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.

Touching upon the issue of corporate governance, the Sebi chief said the regulator has 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, Mr Sinha said the situation needs to be looked at for some more time.

"Your point that not much money has come in, I would like that you should wait for some more time because there has been a change of government and people outside India are waiting for the new policies. My personal feeling is that it will be successful but we can wait for some more time," he said.

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