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Capital markets still jittery, fear more taxes on market participants

PM’s speech on taxing capital markets, despite being negated by Finance Minister Arun Jaitley has not gone down well with them.

Published: 28th December 2016 12:55 AM  |   Last Updated: 28th December 2016 07:49 AM   |  A+A-

Sensex-Reuters

For representational purpose. (File photo | Reuters)

Express News Service

BENGALURU: Despite Tuesday’s rebound, dealers and traders point out that the financial markets are still jittery. The Prime Minister’s speech on taxing capital markets, despite being negated by Finance Minister Arun Jaitley has not gone down well with them.

Narendra Modi had, on Saturday, said, “Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low.”

At the moment tax on Long Term Capital Gains (LTCG) is tax exempt while Short Term Capital Gains (STCG), withholding period of less than 12 months, is taxed at 15 percent.

According to V K Vijaykumar, Chief Investment Strategist, Geojit BNP Paribas, the probability that the tax burden will increase is very high and one-year exemption for LTCG may be tweaked to two years.  “Last year, budget reintroduced tax on dividends for those earning dividends in excess of Rs10 lakhs, so there is a possibility that this may be changed,” he said.

However, what is at stake is the Securities Transaction Tax (STT) — paid by market participants when a share is bought. “If the STT is increased, it will reduce market transactions, volumes will fall and will lead to a decline in the tax collected,” he added.

An equity dealer at Nirmal Bang Institutional Research, Mumbai said that it was “unfair to say that we are not paying taxes”. “Does he (Modi) want to tax people who are making money after making profits or the markets themselves. If he is thinking about the latter it is going to be disastrous,” he added.

Others agree. “Who likes paying taxes despite making losses,” asked A.K Prabhakar, Research Head, IDBI Capital Markets. Sriram Jagdish, an equities trader at Karvy Stock Broking said, “For a trader, the gains are considered as business income and taxed. Now only the Budget can provide some amount of clarity on how capital gains will be taxed.”

According to Vijaykumar, there is triple taxation on the same amount. “You tax net profit of companies, you tax the company when it is paying dividends and after it’s in the hands of the shareholders, again it is being taxed. So it’s unfair to say they are not paying taxes,” he said.



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