Union Budget 2018: Tax on equities will divert savings to unproductive assets
By Express News Service | Published: 02nd February 2018 01:12 AM |
KOCHI: The Union Budget for 2018-19 is presented with an eye on the election. And so, in my view, it’s a populist budget. The biggest announcement in the Budget is the National Health Protection Scheme, which aims to cover 10 crore poor and vulnerable families.
Healthcare is becoming increasingly unaffordable for the common man. The budget proposal to provide coverage of `5 lakh per family per year in the secondary and tertiary care institutions, benefitting 50 crore people, is perhaps the biggest in the world.
We need to see how the government will implement such a huge scheme. The decision to ask corporates to raise one-fourth of their fund requirement through the debt market will make the retail debt market vibrant. The Finance Minister has also announced a uniform stamp duty for the national debt market. At present, the stamp duty is different in different states.
Negatives: The decision on long-term capital gain (LTCG) tax on gains up to `1 lakh from equities is a big letdown for stock market investors. The impact of this will be severe as the LTCG is also applicable to equity mutual funds. Not just that, the Finance Minister has also proposed to introduce dividend distribution tax (DDT) for equity mutual funds. This is a big negative. The gains from equity mutual funds were given the tax-free status till now to divert the savings of the people from unproductive assets such as gold and real estate to the productive financial assets such as equities.
The Finance Minister has justified the LTCG stating the investors are sitting on huge profits due to the current bull rally. Will he abolish LTCG tax if the share prices fall next year? When the foreign financial investors took out money from our stock markets last year, it was the domestic mutual funds which gave stability to the market. By making an investment in MFs taxable, the FM has made the investment in equity MFs unattractive. The Budget has also failed to announce steps to provide jobs to our youth. Given the rising unemployment, there were expectations the Budget will come up with some big announcements to promote jobs in our economy. I’ll give 5.5 marks out of 10 for the Budget.