Arun Jaitley, the Finance Minister and NAMO’s right-hand man, has a bad habit of tinkering around with issues that do not require any fixing. We saw this in the past when Jaitley fiddled around with the taxation of provident fund payments and aroused the ire of middle-class citizens. He also imposed triple taxation on dividends without any regard for the sentiments of the investors or their welfare.
Jaitley has been itching to tax capital gains on sale of shares. He once said that capital gains are the income of the rich and famous and there is no reason why a poverty-stricken country like India should exempt it from taxation.
Yesterday, Jaitley shocked everyone by suddenly announcing that the long-standing exemption from capital gains that foreign investors enjoy pursuant to the India-Mauritius tax treaty would be repealed with respect to all shares acquired on or after 1st April 2017.
Samir Arora, the whiz-kid fund manager with Helios Capital, which has invested billions of dollars in Indian stocks, went hysterical and aggressively denounced Jaitley’s move.
“Mauritius treaty change: STUPID, STUPID, STUPID” he cried, making his contempt for Jaitley known to everyone.
Mauritius treaty change:
STUPID, STUPID, STUPID.
— Samir Arora (@Iamsamirarora) May 10, 2016
Arora also belligerently pointed out that the only other Countries that tax capital gains of foreign investors are junkyard ones like Argentina and Pakistan. Apparently, no other self-respecting Country taxes capital gains of foreign investors. He also complained that the proposed tax structure is not “operationally feasible”.
Samir Arora, Helios Capital: Current tax structure is not operationally feasible.
— CNBC-TV18 News (@CNBCTV18News) May 11, 2016
However, before Samir Arora’s diatribe could influence novice investors, Rakesh Jhunjhunwala, the Badshah of Dalal Street, rushed to defuse the situation.
The Badshah was equally aggressive in his opinion. As opposed to Samir Arora’s statement that the move is “stupid”, Rakesh Jhunjhunwala called it a “sensible move by a sensible government”. He also attacked Samir Arora indirectly by stating that “Blackmail that this kind of tax law will impact flows is not fair.”
— CNBC-TV18 News (@CNBCTV18News) May 11, 2016
The Badshah made it amply clear that he has no sympathy for the FIIs. “End son-in-law treatment for FIIs; India no Africa”, the Badshah said. “Foreign investors are not God’s chosen children. Sometimes have to be fearless, do what is right” he added. “Why will someone not invest in India because he has to pay 7.5% tax” he thundered.
Rakesh Jhunjhunwala’s aggressive stance set the tone for the other stock wizards.
Ramdeo Agrawal was clearly irritated at the suddenness of Jaitley’s move. He called it a “bombshell” and said the knee jerk reaction of the investing public to dump stocks was “very logical”. However, he soothed investors’ sentiments by pointing out that the “Next 10 years are going to be most exciting in Indian equities” and that there is no cause to worry that FIIs would desert India and leave it high and dry.
Ramesh Damani also calmed the harried nerves of investors. He pointed out that the “New tax treaty gives a clear signal for investors to enter India” and that the “New tax treaty will reduce corruption & regulatory delays in the future”.
Samir Arora found a formidable ally in Jim Rogers, the maverick trader/ investor. It may be recalled that Jim Rogers had once been badly mauled by the ace investors for his anti-NAMO and anti-India statements. However, when the markets tanked in February 2016, the ace investors gracefully apologized to him and complimented him for his vision and astute reading of the situation.
Jim Rogers grabbed the opportunity to attack NAMO all over again. “The more you tax on capital, the less you receive, and it’s a simple equation which holds for any country whether it’s the US, China or India. India will become less attractive as an investment destination. This is going to hurt India overall in terms of sentiment” Jim said. He also gave NAMO a vote of no-confidence by adding “I am not happy the way the government has delivered in the past two years in office. I expected economic reforms, and changes, which has not happened. And if Modi cannot bring changes then who is going to bring reforms in this country?”
Towards the EOD, the concerted defense by the three eminent stock wizards, Rakesh Jhunjhunwala, Raamdeo Agrawal and Ramesh Damani, saved the day for Arun Jaitley. The markets staged a smart recovery and closed in the green, allaying the doomsday prophecies of Arora and Rogers.
However, Samir Arora was not prepared to concede his position. “The impact of such issues is not decided in a day” he said in an ominous tone, once again sending a chill down the spine of novice investors!