Source Business standard
| Sebi prepares ground for municipal bonds |
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Mumbai, 3 September The Securities and Exchange Board of India ( Sebi) is preparing the ground for the launch of municipal bonds, a popular debt instrument issued by local governments globally. Sources said Sebi planned to float a discussion paper on the issuance and trading of municipal bonds, popularly called muni bonds. To ensure this is a viable proposition, the regulator is in talks with the finance ministry to ease the norms on pricing such bonds. Sebi has sought the cap on the coupon rate on such bonds be relaxed if these are issued under the ' taxfree' category. According to rules, atax- free debt instrument has to be priced at a minimum stipulated discount to similar- tenured government securities. " In a rising interest rate environment, a ceiling on the coupon rate could prove to be a hindrance for municipal authorities to launch these bonds," said an expert. Such instruments are popular among global investors, as these offer relatively higher yields, as well as tax breaks. The funds raised by local governments through such bonds are spent on developing local infrastructure such as schools, roads, hospitals and sewage systems. Globally, the market for municipal bonds is estimated at about $ 3.5 trillion. The first municipal bonds in India were issued in 1995, while the first state- guaranteed bonds were launched by the Bangalore Municipal Corporation in 1997. In 2010, the Greater Visakhapatnam Municipal Corporation issued bonds worth ₹ 30 lakh. In November 2013, the Associated Chambers of Commerce and Industry had written to the Reserve Bank of India to allow municipal bonds to be traded. In December, Sebi had set up a 20- member committee to develop a market for such bonds. Experts say India's municipal bond market faces various hurdles, including low ratings, reluctant investors and unclear regulation. Municipalities in metros and other large cities are reluctant to turn to the debt market, as these are flush with cash. Municipalities in tier- III and tier– IV cities, which need capital, don't have access to bond markets and rely on Housing and Urban Development Corporation for funding. Sebi has sought credit enhancement for municipal bonds by providing banks or financial institutions as guarantors for the bonds. "Allowing credit enhancement will certainly increase the marketability of such bonds and attract long- term investors such as pension and insurance companies," said an expert. The market regulator likely to float discussion paper soon |
Companies could get tax benefit for some CSR activities Source Times of India
Money spent on all corporate social responsibility (CSR) works cannot be counted as business expenditure but certain social welfare spending activities could be considered for tax benefits, according to Central Board of Direct Taxes (CBDT) Chairman RK Tiwari.
Under the new Companies Act, certain class of profitable entities are required to shell out, at least, 2 per cent of their three-year average annual net profit towards CSR activities.
The government has provided clarity on tax aspects of CSR in the Union Budget.
Clarifying the government's stance on the issue of possible tax benefits for CSR activities, Tiwari said that under certain Income Tax Act provisions, deductions are allowed for some activities.
"... but there are certain other Income Tax provisions where deduction is allowed like for farming, for education ... they also come under CSR. So, our view is that there are many activities which are akin to CSR but they are not to be allowed as business expenditure...," Tiwari told PTI.
In the Budget, the government said that as the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing taxable income of the company. However, deductions could be allowed for certain CSR activities
"... the CSR expenditure which is of the nature described in Section 30 to Section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein," the Budget stated.
Emphasising that the objective of CSR is to share the government's burden, the Budget said that if such expenses are allowed as tax deduction, this would result in subsidising of around one- third of such expenses by the government by way of tax expenditur
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