Budget 2022: Capital tax on securities will hamper liquidity, says Euroclear

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Any capital gains tax for securities transactions on the Euroclear platform will significantly hamper market liquidity, the clearing institution said days before the Union budget, when the government is expected to modify the levies for foreigners.
“That would mean we had to change our core model and split the omnibus model into a separate mode,” Sudip Chatterjee, head of global capital markets at Euroclear, said in response to questions from Bloomberg News. This “is not feasible and defeats the main purpose of why countries include sovereign papers in global indices,” he said.
Chatterjee did not comment on the progress of discussions with New Delhi on the use of Euroclear’s platform for the settlement of transactions involving Indian government bonds. Although listing on international clearing platforms is not a necessary requirement for inclusion in global bond indices, global investors prefer it as it offers significant operational ease.
Euroclear operates in 49 countries and none of them tax their securities on the platform, Chatterjee said.
According to ICICI Securities Primary Dealership Ltd, there is increasing talk of tax exemptions for trading Indian bonds in offshore clearinghouses. Such tax breaks would make it easier to trade Indian bonds globally and also open up the market pool of investors, economists including A. Prasanna wrote in a note.
However, a key ally in Prime Minister Narendra Modi’s party opposes a separate exclusion for foreigners and wants a level playing field for domestic investors. Finance Minister Nirmala Sitharaman will present the annual budget on Tuesday.
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