Govt mulls tax sops to boost corporate bond market

The government is mulling tax incentives, reduction of stamp duty, and simplified regulatory norms to promote the corporate bond market for helping companies raise funds at competitive rates.

"Bringing liquidity in the corporate bond market is an issue for long. The government is ready to put whatever is there to get it going. We may consider tax incentives, like doing away with the witholding tax, and reduction in stamp duty," a Finance Ministry official said here.

The issues concerning corporate bond market were discussed at an internal meeting of the Finance Ministry today.

The Finance Ministry, the official said, would also hold discussions with the representatives of financial institutions, like Morgan Stanley, ICICI Securities, PNB Gilts, AK Capital and Tata Group, on Thursday on the steps for boosting corporate bond market.

At present, government securities are preferred over corporate bonds as they enjoy sovereign guarantee and are highly liquid as compared to bonds.

A vibrant corporate bond market, as suggested by India Inc in its August 1 meeting with Finance Minister Pranab Mukherjee, would go a long way in meeting the infrastructure needs of the country.

The government envisages doubling of infrastructure spending to $1 trillion in the 12th Five-Year Plan beginning April 1, 2012.

Sources said tax benefits could include reduction in Securities Transaction Tax (STT) and Stamp Duty, besides withdrawal of withholding tax.

"Development of corporate bond market is the most complicated policy issue being dealt by us. But we are keen to bring vibrancy in this segment," the official said.

Earlier in March, market regulator Sebi had constituted a 16-member committee to suggest a roadmap for developing the corporate bond market.