Tax reforms key to unlocking capital, deepening bond markets: Report

Mumbai, Aug 16 (IANS) The sweeping tax reforms are needed to unlock capital, lower financing costs and deepen India’s capital markets as part of a 20-step roadmap aimed at helping the country achieve a $20 trillion economy by 2036, a new report said on Sunday.

In its report, “India’s Road to a $20 Trillion Economy”, Equirus Securities has proposed tax rationalisation across fuel, investment income, corporate bonds and equity markets, arguing that such measures could improve capital allocation, reduce compliance burdens and support faster economic growth.

The report has recommended bringing fuel under the Goods and Services Tax (GST), saying the move could lower logistics costs and improve the competitiveness of Indian businesses.

An 18 per cent GST on fuel could unlock around Rs 5.5 lakh crore across the economy, according to Equirus.

The brokerage estimates that the move could bring down logistics costs from around 9 per cent to 7 per cent of non-services GDP and add 0.3-0.4 percentage points to annual economic growth.

It also projects an export gain of around $60 billion, although the move could result in an estimated annual loss of nearly Rs 1.6 lakh crore in net central excise revenue.

Equirus has also advocated bringing the tax treatment of bonds and equities closer to parity to encourage the development of the corporate bond market.

The report said India’s corporate bond market is currently around 18 per cent of GDP, compared with 130 per cent for the equity market.

According to the report, matching China’s level of bond-market development could create around Rs 54 lakh crore of additional financing capacity.

Lower borrowing costs could also result in direct savings of nearly Rs 2.2 lakh crore annually for borrowers, equivalent to 0.63 per cent of GDP before multiplier effects.

Equirus estimates that the resulting economic multipliers could add 0.9-1.3 percentage points to growth.

The brokerage has further proposed cutting Tax Deducted at Source (TDS) on investment income to a flat 5 per cent, with any balance tax being settled at the time of filing returns.

Equirus estimates that the move could release around Rs 13.4 lakh crore of working capital back into the financial markets.

–IANS

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