Stimulus package: Market mood lifts on FPI tax surcharge reverse

PALAK SHAH Mumbai | Updated on August 23, 2019

File photo   -  Bloomberg

Market players hail Finance Minister’s announcements

Cheer could return to stock markets as sentiments got a boost after Finance Minister Nirmala Sitharaman addressed key issues with regard to tax and economy on Friday, experts told BusinessLine.

In her press conference on Friday, Sitharaman said she was reversing the additional surcharge imposed on long-term and short-term capital gains tax for foreign portfolio investors (FPIs) in the Budget.

She also announced a slew of measures to boost auto sector growth and address credit scenario by immediately re-capitalising the banks. Nifty index in Singapore was traded 100 points higher domestic market closing.

“Sitharaman signalled to markets that the government was willing to listen and even change policies to improve economic sentiments and growth. Effectively, she said whatever wrong was done in the Budget stands corrected. She has addressed quite a few issues and even promised to return with more announcements. Basically, she gave everything the markets needed,” said Raj Bhatt, vice-chairman, CEO, Elara Capital.

FPIs went on a relentless selling spree in the stock markets after the Budget was presented on July 5. BusinessLine was the first to report on July 8 that FPI tax outgo could increase in terms of long- and short-term capital gains tax due to additional surcharge. Even though Sitharaman did not say this in her Budget speech it was hidden in the fine print.

Read: Stimulus package: Govt rolls back enhanced surcharge on foreign portfolio investors

Bhavin Shah, partner and leader, financial services tax, PwC, hoped that amendments regarding FPI tax were made correctly in the fine print this time.

“The Finance Minister announced the removal of higher surcharge on capital gains for FPIs. Her presentation suggested amendment in respect of capital gains taxable under Sections 111A and 112A. FPIs are however taxable under a different section 115AD. I hope the fine print comes corrected. The removal of higher surcharge will not apply to alternate investment funds, which deal in derivatives where the characterisation of income is business income.”

“There was a marked difference in Sitharaman’s attitude. She has promised to return with more changes. It reinforces that government will shed its heavy handed approach,” said head of institutional desk at Mumbai brokerage.

Published on August 23, 2019

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