New debenture taxes deter new debt listings
It’s almost official. While the prayers by the capital market industry on creating a level playing field in taxation on instruments such as debentures and bonds will soon be answered, a set of fresh issues has arisen.
Treasury sources told the Business Times that the Withholding Taxes (WHT) on debt instruments which have been raised to 14 per cent from 10 per- cent and applicable to individuals will now also apply to all corporates (earlier they were taxed according to their income brackets). This tax structure, they said will be gazettded.
Some say that now the savings accounts’ WHT is at 5 per cent and the new tax structure will deter those investments in debentures. Also the corporate sector has been enjoying tax free income by investing in listed securities and unit trusts. While clarity on the latter is still at large (last year’s budget proposals say that tax exemption granted on dividends paid by any Unit Trusts to a unit holder will be excluded for corporate sector investors)), analysts say that earlier people bought debentures as it was tax free. The new tax will be a deterrent for future debentures, they say.
They are also unhappy about this same 14 per cent tax being applied on those who already subscribed for debentures when they were tax free. “This is not fair,” an analyst said.