Capital market regulator Securities and Exchange Board of India (Sebi) has sought clarity from the government on taxation of securitisation contracts and has also asked the centre to take a real and final stand on this issue.
“One of the reason that we see lesser amount of activity on securitisation is also because of the taxation policy not being clear,” said Sebi chairman UK Sinha on the sidelines of India Securitization Summit 2012 today.
“There have been some recent developments especially with regards to taxation .Asset management companies received notices that they also have to pay taxes. This is the matter on which government will have to clarify that what is the real and final position,” he said.
Earlier this year, the income tax had slapped notices to trustees of several securitization transactions seeking them to pay tax on income generated through pass through certificates (PTCs). Trustees, in turn, passed asked asset management companies (AMCs), who were investors in these instruments to pay the tax. Following which, AMCs had filed petitions in Bombay High Court, seeking relief from the tax. The Bombay HC passed a stay order on the IT department notice. However, AMCs have become skeptical about investing in securitised instruments till the matter get completely resolved.
Yashpal Gupta, deputy CEO, IDBI Trusteeship Services,said, the position of income tax department makes the product unviable.
“The asset management companies are expected to pay up to 35% tax on the receipts from the originator. Different tax officers are taking different positions. The matter has to be clarified at the highest level. Otherwise, this product will not take off.”
Arjun Parthasarathy, founder, investorsareidiots.com, also said the tax uncertainty has to be cleared for the product to become popular.
According to a report by rating agency ICRA, although the securitisation market grew 15% in 2011-12, the issuances volume continues to remain subdued and concentrated among few originators.
“Around 75% of the market in 2011-12 was essentially bilateral loan pool trading, driven by the economics of priority sector lending targets. It follows that the investor segment is largely banks—mainly private sector and foreign banks. Mutual funds have mostly been absent from the securitisation market for a variety of reasons, the latest being the unresolved issue of income tax authorities’ claim on taxing the income from securitised instrument,” ICRA said in a report.
Sinha today said that it's a food for thought for everyone that no listings have taken place after 2008 securitisation guidelines.
He further said securitisation is an important instrument for the growth of the financial services industry in the country and Sebi would be willing to look at any regulatory changes that are required to develop the market.
