The finance ministry has lined up a clutch of reforms for capital markets over the next one year to attract investments, both domestic and foreign, senior government officials told FE. Most of these reforms can be called ‘low-hanging fruit’, which don't require legislation, and a few would necessitate minor amendments to income tax laws, officials said. These will be presented to the incoming finance minister as a blueprint for action, they added.
The measures to be implemented over a period of three months include uniformity in withholding tax on external commercial borrowings (ECBs), infrastructure and non-infrastructure bonds. Currently, companies raising ECBs are required to withhold tax at 5% on the interest income of the overseas lender. the withholding tax in case of issuers of infrastructure and non-infrastructure bonds (where FIIs are allowed to invest) is 5% and 20%, respectively. The proposal is make the tax uniform at 5% for all the three categories, sources said.
Also, the ministry has proposed in the blueprint the draft regulation on real estate investment trusts (REITs), published by Sebi in October 2013, allowing this category of investment vehicles in India. This could be notified soon. REITs, which exist in most developed markets, take investors' money and invest it on their behalf in real estate projects. They are akin to mutual funds for stock market investors.
Further, the ministry wants the incoming dispensation to relax the tax provisions so that fund management companies can be persuaded to have permanent establishment (PE) in India. “As for foreign funds that invest in India, most of them are based abroad. The fund managers are mostly averse to having their physical operations in India, as they fear such presence will lead to paying taxes on their investment income. We want to remove that fear and ensure that the fund managers can establish presence in India,” a ministry official said.
Besides, the ministry is also pitching for passage of the Securities Laws (Amendment) Bill, 2014 in the next session of Parliament, which, inter alia, proposes to empower Sebi to investigate chit funds and other ponzi schemes.
Retirement-linked plans of insurance companies are currently regulated by Irda while those of banks are regulated by the RBI. A proposal under consideration is to bring all such products under the pension regulator, PFRDA. The above have been proposed for the forthcoming full budget, or for implementation over the next three