Securitisation mkt players ask govt for clearer tax norms

The Indian securitisation market is not seeing any takers especially after pass through certificates came under the tax department's scanner earlier this year. The task of reviving this market now falls on the finance ministry, report CNBC-TV18's Mitra Joshi and Ashmit Kumar.

Finance minister P Chidambaram has a lot on his plate. His ministry is already working on placating ratings agencies, pushing ahead reforms, bringing back investments, containing inflation and finding ways to fuel growth, and now, it has to deal with reviving the securitisation market.
The market became something of a pariah after the I-T department issued notices to 10 mutual fund houses for tax on income accruing from investments in PTCs or pass through certificates, which are issued by special purpose vehicles.
Rajiv Anand, managing director and chief executive officer, Axis AMC, said, "I don't think any of the mutual fund participants have bought any PTCs and I don't think mutual fund houses will buy any PTCs going forward until we have some clarity in terms of taxation of these instruments."
Mutual funds account for nearly 80 percent of the securitisation market's business, which hit Rs 60,000 crore last year. However with fund houses running shy, the market is dependent on banks, which use the market to meet their priority lending targets. The trustee companies which issue PTCs are also in a fix, after receiving income tax notices for transactions done in the last 10 years. Now the players are asking CBDT to clarify on tax liability.
Yashpal Gupta, deputy chief executive officer, IDBI Trusteeship Services, said, "It is better if CBDT gives clarity. They should give clarity on this kind of structure if SPVs should pay tax or not . If so, at what rate? If not, what criteria should be adopted by SPVs to not to pay tax? Since mutual funds are otherwise exempt from tax, they are investors in trust, should they pay tax?"
While this matter is being heard at the CIT level, fund houses have asked the finance ministry to step in and resolve the issue. Until a solution is reached, experts say the securitization market is in for a tough time.