During their pre-Budget consultations with Finance Minister P Chidambaram today, bankers said they be allowed to issue tax free bonds like other entities. The lenders also demanded incentives for reducing the lock-in period of tax-saving deposit schemes from five years to three years in the Budget for 2013-14.
Among the other demands are tax deduction for provisioning for certain category of non-performing assets (NPAs) and tax incentives for perpetual bonds counted as tier-1 capital.
The bankers also raised larger macro economic and market-related issues on gold imports, securities transaction tax and boosting electronic component industry. They cautioned the finance minister that excessive curbs on gold imports might affect jewellery exports.
The lenders also demanded that either securities transaction tax be done away with or commodities transaction tax be imposed, since money is going in the commodity futures market.
On the other hand, representatives of non-banking finance companies demanded tax-parity with banks.
"There was a requirement that lock-in period should be reduced in tax-saving deposits or bonds from five years to three years to bring it in line with tax saving ELSS (equity linked saving schemes)," State Bank of India Chairman Pratip Chaudhuri told reporters after the meeting.
He said some banks requested that they be allowed to issue tax-free bonds, as has been allowed to other entities, because banks have good distribution network and can finance infrastructure projects.
In Budget 2012-13, the government had allowed 10 state-run companies such as Power Finance Corporation, Rural Electricity Corporation, India Infrastructure Finance Company (IIFCL), etc. to raise Rs 60,000 crore by issuing tax-free bonds, against Rs 30,000 crore in 2011-12.
Tax-free bonds are different from tax-saving bonds since interest earned is free in the former, while the amount invested is exempted from tax in the latter
On gold imports, the bankers said the import was also connected to jewellery exports and any efforts to bring down the inbound shipments would affect jewellery exports. "Any restriction on gold import should be done carefully and in a calibrated manner because gold import has also a correlation with jewellery export," Chaudhuri said.
Referring to capital markets, Chaudhuri said the domestic investor is not keen in equity markets.
"Domestic savings are going for gold and foreign capital is being brought for equity market. So these issues needs to be looked at," he added.
He said banks suggested that either securities transaction tax (STT) be abolished on equity market or commodity transaction tax (CTT) be imposed on commodity trading to attract investment in the capital market.
"Much of the money which could have been invested in the stock market is now going into this commodity market. Either you have a CTT or you abolish the STT," he said.
The bankers also demanded tax benefits on certain categories of NPAs provisioning. "We have asked whatever is the provisioning done as per RBI norms and as certified and approved by the auditors should be allowed as tax deducted," the SBI chairman added.
The lenders also suggested that something should be done to incentivise and promote the electronic components and goods industry as has been done for the auto component industry.