Sebi panel bats for tax sops for social stock exchanges

An expert panel constituted by the markets regulator, Securities and Exchange Board of India (Sebi), has suggested tax sops, such as an exemption from the securities transaction tax (STT) and capital gains tax (CGT), to ensure that social stock exchanges (SSES) take off in the country.

The 15-member expert panel under the chairmanship of Tata group veteran Ishaat Hussain was constituted by Sebi in September last year following a Union Budget proposal in July. SSES are used globally for making impact-investments with an objective to achieve certain social goals.

Besides abolishing STT and CGT, the panel has recommended philanthropic donors be eligible to claim 100-per cent tax exemption. Also, it suggested allowing first-time retail investors to avail a 100 per cent tax exemption on their investments in the SSE mutual fund structure, subject to an overall limit of ~100,000.

“To sustain and grow the flow of funds through the exchange, a multidimensional policy intervention is required that will mitigate the various impediments to the seamless flow of funds towards the social sector, and also route new sources of funding to social enterprises, including those listed in the social stock exchange,” the expert panel said.

The panel has also proposed ~100 crore for “capacity building fund” to create a capacity building unit that will foster overall sector development.

Other key proposals include funding to nonprofit organisations (NPOS) on SSES to be considered as corporate social responsibility (CSR) spends, and allowing trading of CSR spends between companies with excess CSR spends and those with deficient CSR spends on SSES. The panel has also suggested measures to attract funders and investors towards the proposed exchange platform. It has suggested reporting and disclosure framework to ensure transparency.

The panel has proposed various models for introducing SSES in the country. These include matchmaking platforms and alternative investment instruments listed on an existing stock exchange. The expert group also recommended the SSE can be housed within the existing BSE or the NSE to enable leveraging of the existing infrastructure and client relationships.

The Sebi panel has said SSES can prove to be useful to battle the economic damage caused by the Covid-19 pandemic. “Our recommendations are also motivated by a very urgent concern about the economic damage inflicted by Covid-19, especially upon the poorest Indian households and large swathes of the informal sector. The SSE is envisioned as one of the possible solutions to this pressing problem. It will aim at unlocking large pools of social capital, and encourage blended finance structures so that conventional capital can partner with social capital to address the urgent challenges of Covid-19,” the working group said.