‘Long-term tax could kill cult of equity investment in India’

Long Term Capital Gains (LTCG) tax was fiercely opposed by prominent stock market investors Samir Arora and Shankar Sharma at The Hindu BusinessLine ’s pre-Budget panel discussion. Both of them believed that such a tax could kill the cult of equity investment that India had developed over the past few years.

“Foreign investors are not taxed in most developed countries. India is already charging transaction tax on equities, which is levied irrespective of profits or loss. In such a scenario, what is the use of bringing in LTCG, when government has no idea how much it will yield and more than that kill the equity markets. This is not a reform in any way,” said Arora, founder and fund manager, Helios Capital. “Bull market thinking is pushing bizarre ideas. If instead we get into a bear market, then the government will do everything to attract investment instead of taxing investors. We should not de-incentivise people from entering into the equity market. It is only in the bull market scenario that government can talk about such a tax whereas there they will prudently reverse any such measures to attract inflows whenever there is a severe correction in the markets,” said Sharma, the co-founder and chief global strategist, First Global.

“India would be setting a bad precedent if there is no certainty in its tax regime. It is absolutely thoughtless to tinker with a tax system like STT, which gives the government a certain amount of tax collection, and replace it with another rule that may not bring any revenue when markets fall.”

A stable tax regime, where standard tax structure continues over a long period of time, is more important than bringing in tax reforms that may have a detrimental effect, felt Dinesh Kanabar and NS Venkatesh, who were the other prominent speakers on the panel. “One cannot have a situation where tax regime changes every year,” said Kanabar, the founder and CEO, Dhruva Advisor.

“It is okay to start taxing long-term capital gain, but before that a lot of clarity needs to be there. First, there can’t be a change in tax regime every year – that does not speak well of a stable country. Second, past gains cannot be taken into account. Finally, what defines a long-term capital gain needs to be clarified and should be changed. Instead, the government could think of raising the holding period for computing LTCG.”

“While the mutual fund industry is growing, penetration is still about 6.6 per cent, which translates to only about 1.5 crore people once multiple folios per person are taken into account. Therefore, mutual funds industry still needs some handholding,” said NS Venkatesh, CEO, AMFI.

Economic slowdown On the question on slowdown in economic growth, the panellists said there was a dire need to stimulate in whichever way possible.

Sharma said the country has not had any serious structural reforms in the past few years, and that the government needs to plan its finances better instead of depending only on low crude prices which could go up anytime.

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