"You cannot be a hero
without being a coward."
—George Bernard Shaw (Irish,
1856-1950)
Word for the day
Denouement (n)
The outcome or resolution of
a doubtful series of occurrences.
The final resolution of the
intricacies of a plot, as of a drama or novel.
Malice towards none
In the spirit of pluralism,
the administration shall tell schools to hold a 10minute meditation session
every day, in which all students should be encouraged to silently pray the way
they like it, instead of current practice of chanting specific prayers.
First random thought this morning
The outrage of the Congress leaders over cabinet decision to allow
100% FDI in single brand retail is inexplicable. If Congress Party truly believes
that this decision is in the interest of the Nation, they should rather welcome
it.
The fact that BJP, which opposed the move in 2012, has finally
chosen to follow the path taken by Congress should encourage the Congress
leaders. What is there to complain in it! After all their leader Rahul Gandhi
has famously proclaimed that Congress is not a party but a "thought" (सोच)
or ideology. If BJP chooses to conform to at least some part of Congress
ideology, it should be a subject of celebration for Congress.
Gurdas Mann singing Dil Da Mamla again
People in their 40s and 50s would
remember the kind of anticipation and excitement the New Year Eve entertainment
program of Doordarshan (DD) used to ignite amongst middle class households.
While the elite (there were only a
few back then) partied the whole night and poor shivered, the middle classes
would usher the new year sitting in front of their B&W TV sets, listening
to Gurdas Mann and watching some sundry comedians trying hard to make people
laugh.
The advent of satellite television
and rise in middle class aspirations, which took them out of home to party on
roads and in clubs, completely diminished the charm of DD. For entertainment,
DD now is the recourse of only those who can't afford a cable connection or Jio
sim!
Somewhat similar is the situation
with the Union budget now.
In earlier days, the rich would
eagerly wait for the budget for incentives to make investments and loopholes to
evade taxes. The middle classes would wait for some tax concessions. The poor
would anticipate more subsidies and welfare schemes.
That situation prevails, no
longer.
Tax incentives and deductions have
been largely rationalized. Tax rates are mostly predictable. Indirect taxes are
out of budget and totally in the realm of GST council. Most welfare schemes
have been transferred to states. The union budget is now a boring accounting
exercise.
The financial media though tries
its best to make it a marketable event, to rake up their TRP. They would rake
up all sorts of stories, mostly baseless, to keep the audience interested.
Tax on long term capital gain
(LTCG) arising from sale of publicly traded equities is one such stories (like
Gurdas Mann's performance) that is served almost every year. If my message box
is a benchmark, at least half the market participants are discussing and
worrying about it, once again.
Since, a large number of readers
have sought to know what do I anticipate from budget, especially regarding LTCG
taxation, I may reiterate that I have stated many times before:
In my view, The finance minister
is like CFO of a business corporation. His job is to keep account of the
receipts and expenditure of the government; manage resources necessary for
executing the plans approved by the Cabinet; ensure optimum utilization of
available resources; and keep adequate provision for meeting contingencies.
He is accountable to all the
stakeholders, insofar as the transparency of accounts is concerned. His
discretions are however limited to choosing the sources of revenue needed for
executing the plans of the government.
Zero tax on long term capital gains
on listed equities has always been a bone of contention. In past, every year,
mere hint of withdrawal of this exemption has made markets jittery. But to
develop a vibrant debt market an encouraging start ups, brining parity in
taxation of debt instruments, unlisted equity and listed equity might become
necessary.
In my view, the exemption to the
listed equities from LTCG is an anomaly that would need to be corrected at some
point in time, sooner than later.
Evaluating holistically, the
activity of buying and selling equity shares in secondary market per se does
not provide any risk capital to the underlying businesses.
It in effect just changes the
beneficial owner of the business. Prima facie it sounds illogical why should
someone who is actually transferring his risk, be rewarded with lower (or no)
taxes?
It is extremely difficult to
support the argument that holding a listed stock for more than one year in any
way helps the economy or the markets.
The logic of holding a security
for longer term, if at all, enhances the chances of higher returns for the
investor. Why should the investor be given tax breaks for enhancing his return
prospects?
One could appreciate the
"development of capital market" argument in case of investing in
IPOs, PE funds, or venture funds etc., as in such cases the businesses get the
much needed risk capital. But the secondary market transactions do not pass
this muster.
The incentive for longer term
holding period has, in my view, failed miserably in improving market liquidity
or minimizing market volatility.
It is common knowledge in market
place that the LTCG exemption for tax has been abundantly misused for money
laundering purposes.
In fact in past couple of years,
the regulator and taxation authorities have also initiated action in many cases
for misuse of LTCG taxation provision for money laundering.
In fact, to the contrary, the day
traders, jobbers and market makers who provide the much needed liquidity to our
shallow markets, and hence motivate risk taking, deserve serious tax
incentives.
Abolition of Securities
Transaction Tax (STT) may actually lead to material rise in daily volumes and
deeper markets, thereby materially lowering the transaction cost and market
volatility.
In absence of a functional retail
debt market, companies depend heavily on "fixed deposits" from
household investors for meeting their working capital requirements. These
deposits are fully unsecured and entail high risk for investors, in lieu of
marginally higher interest rates as compared to bank lending rates.
Providers of unsecured debt take
much higher risk and therefore deserve more tax incentives....More on budget
views next week
No comments:
Post a Comment