Will you still love me after Budget 2018?
NAMO and Arun Jaitley are both battle-hardened and seasoned politicians. They know that big-ticket and radical taxation measures cannot be ushered in overnight.
Instead, one has to gradually prepare the ground and de-sensitize the populace so that there is minimal shock and surprise when the changes are made.
NAMO sent the first feeler during Budget 2017 that changes with respect to the tax exemption for capital gains are in the offing:
“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. To some extent, it may be due to illegal activities and fraud. To stop this, SEBI has to be extremely vigilant. To some extent, the low contribution of taxes may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income. We should consider methods for increasing it in a fair, efficient and transparent way,” NAMO said, sending a chill down the spine of all market participants.
However, this statement created such uproar amongst citizens that NAMO and Jaitley had to beat a hasty retreat.
“I wish to absolutely clarify that there is no occasion or opportunity for anybody to reach such a conclusion because this is not what the PM said, nor is the intention of the government as has been reported,” Jaitley hastily clarified while trying desperately to control the damage caused to investors’ sentiments.
It is a myth that common man wants “freebies and sops“
Now, in Budget 2018, the duo of Modi & Jaitley is once again testing the waters.
“Budget 2018 may not be populist,” Modi said, hinting that the time to feast on “freebies and sops” is over.
“Common man does not want all these things. It is a myth,” he declared.
He also sent a teaser whilst interacting with the captains of Industry:
“Aap hans kyon nahin rahe? (Why aren’t you smiling) … All of you seem pleased with me at the moment, but let us see what you say after the budget is presented,” Modi said even as the Honchos cringed in dread that the Budget would impose new levies.
— CNBC-AWAAZ (@CNBC_Awaaz) January 11, 2018
Samir Arora and Latha Venkatesh lock horns over taxability of capital gains
Latha Venkatesh, the veteran editor of CNBC TV18, wrote a piece in which she gave ten reasons why capital gains on shares deserves to be taxed.
She described the argument that foreign countries don’t tax capital gains as a “bluff” and produced data which showed that only five Countries, which have the dubious reputation of being tax shelters for tax evaders, exempt capital gains. Most other respectable Countries levy tax on capital gains, according to the data.
This article irked Samir Arora, the illustrious fund manager of Helios Capital.
“Latha Venkatesh’s article is so off that it deserves a detailed response,” he said, his nostrils flaring in anticipation of a debate.
.. @Latha_venkatesh article in Mint is so off that it needs detailed response.
1. USA/Europe/Japan etc DO NOT charge capital gains tax on securities to foreign investors. For ex. In USA foreign investors pay 30% tax on dividends and ZERO LTCG or STCG 1/n
— Samir Arora (@Iamsamirarora) January 9, 2018
Samir Arora was backed by his vast army of followers which comprises of several distinguished personalities.
Excellent factual rebuttal, sir.
— Deviprasad (@deviprasadv) January 10, 2018
However, Latha Venkatesh is no pushover. She is well versed with complex macro-economic issues and was not intimidated by Samir Arora’s aggressive rejoinder.
She not only did not concede her point but instead gave a point-by-point rebuttal to all of Samir Arora’s points, cheered by her own army of fans.
Read the article after the rebuttal. Being against LTCG was was expecting to be outraged. Surprised to find the article much reasonable and raises some good points. Equity vs debt, international practice, record flow into equity Mf, setting off STT which the rebuttal has ignored.
— Shashank Tripathi (@shekharpati) January 10, 2018
By the EOD, the two stalwarts realized that neither would be able to persuade the other to a change of stance. They resolved the stalemate by agreeing to disagree with each other.
Arch rivals Shankar Sharma and Samir Arora come together to combat LTCG tax
Shankar Sharma and Samir Arora are known to be arch rivals. One can see them constantly spar with each other over various esoteric issues relating to the state of the Country’s economy.
Neither misses an opportunity to find fault with the other’s view.
However, the dread about LTCG tax united the two opponents.
Shankar was his customary blunt self.
“Long-term tax could kill cult of equity investment in India,” he declared with a flourish.
“Bull market thinking is pushing bizarre ideas. If instead we get into a bear market, then the government will do everything to attract investment instead of taxing investors. We should not de-incentivise people from entering into the equity market. It is only in the bull market scenario that government can talk about such a tax whereas there they will prudently reverse any such measures to attract inflows whenever there is a severe correction in the markets,” he added in his deep baritone.
Samir reiterated his pet point that India should not tax capital gains because that would make it uncompetitive and unattractive to foreign investors.
“Foreign investors are not taxed in most developed countries. India is already charging transaction tax on equities, which is levied irrespective of profits or loss. In such a scenario, what is the use of bringing in LTCG, when government has no idea how much it will yield and more than that kill the equity markets. This is not a reform in any way,” he said.
(Musclemen: Shankar & Samir flex their muscles in a show of strength)
Dinesh Kanabar, the distinguished tax expert, is irked at the constant tinkering of tax laws by the Government.
“One cannot have a situation where tax regime changes every year,” he pointed out.
He also emphasized that even if long-term capital gains are to be taxed, that can only be done for fresh purchases and not for past transactions.
He also advised the Government to take the middle path by increasing the holding period for computing LTCG instead of doing away with the exemption completely.
Citizens oppose LTCG
The points made by Shankar Sharma and Samir Arora reverberated amongst celebrities and rank and file citizens. Several came out strongly to oppose the tax on capital gains.
Long term cap gains……NO NO NO……clear No https://t.co/MtMWIX9Lim
— Anil Singhvi CNBC (@anilsinghviCNBC) January 11, 2018
— Kaival (@KaivalDave) January 11, 2018
Sarkar public Ka paisaa lut rahi hai income tax bharne ke bavajut indirectly tax chahiye LTCG KE ROOP ME GST KI DEFICITS PURI KARNEKE LIYE YE SARKAR KISI BHI HAD TAK JA SAKTI HAI
— MALHAR RAO. (@malhar_rao) January 13, 2018
@arunjaitley @narendramodi Sirs-Request u not to tax LTCG of equity related instruments leaving it as it is.Equity investors take risks for any gain & their risk taking ability must not be taxed.Many Sr.Citizens are retail equity instrument investors too.
— CC (@CCgaru) January 24, 2018
A BIG NO TO THE STEP OF LTCG?
— Hunny Gulati (@hunnygulati83) January 12, 2018
Some warned in a grim tone that this is the “final nail in the coffin” and that the stock markets would crumple like a ton of bricks if the tax proposal becomes reality.
With talks of extending LTCG period on shares to two years or more, the stock markets are upto a major fall before Budget
— Shivam Goyal (@shivamgoyal26) January 21, 2018
@arunjaitley if imposes LTCG on Stock markets, it will be a last nail in the coffin of economy.
Government will loose more money than they expect to make it from LTCG.
Go ahead, we don't expect good things from you @FinMinIndia
Abolish income tax if you want economy to revive
— Harish Sharma (@hk160564) January 24, 2018
However, Porinju baffles by supporting LTCG
Porinju Veliyath shocked everyone by turning contrarian and supporting the tax on capital gains.
“I’m all for putting up to 10% tax on LTCG. This tax may come and go. It won’t make a much difference to long-term investors,” he said.
“Nobody will stop investing in stock market just because of the tax. I would advise investors should ignore the buzz around LTCG and Budget, and just focus on stock-picking,” he added.
10% LTCG is fine; existing grey areas about it, discretionary/harassing powers given Tax Officials is hurting many investors/honest payers!
— Porinju Veliyath (@porinju) February 29, 2016
Porinju’s stance softened the sentiments of some investors.
Even if Govt. comes up with LTCG…looks like market would take it on its Chin and move on. #Budget2018 Not an opportunity to be missed by investor's
— K.P.Nagarajan (@UnagK) January 12, 2018
Bimal Jalan To CNBC-TV18 | If the economy is doing well, govt can decide on LTCG tax; Have to support the farmer at all costs pic.twitter.com/guwgSwHwo0
— CNBC-TV18 (@CNBCTV18Live) January 12, 2018
Does NAMO listen to Porinju? Is Porinju echoing the Govt’s views?
Porinju has clarified on an earlier occasion that he is not a “BJP guy”. However, there is circumstantial evidence that suggests that either NAMO and/or the top brass of the BJP/ Govt may be paying heed to Porinju’s views.
First, Porinju has the unique distinction of receiving a direct communiqué from NAMO. This was interpreted as a significant event by knowledgeable watchers.
Woah!!! I am sure the PM doesnt thank every now and then.. Your tweets must have stuck a chord
— Niraj Shah (@_nirajshah) March 7, 2017
— Singaraju (@Singaraju_R) March 8, 2017
Second, Porinju boasts of the highest number of followers amongst fund managers. His massive army of 8,60,000 followers is second only to that of the legendary Warren Buffett.
— Porinju Veliyath (@porinju) January 9, 2018
People with such massive army of followers enjoy the exalted status of “social media influencers” and are much sought after by marketing experts and political leaders.
Third, Porinju fearlessly takes potshots at RaGa and the Congress party. He has described RaGa as being “intellectually challenged” and the Congress as a “party of criminals”.
2017 – Corruption, Crime & Congis will decline, White will prevail over Black; Investors be ready for a series of positive triggers in 2017.
— Porinju Veliyath (@porinju) December 30, 2016
Such attacks by Porinju are very valuable to the BJP given his reach and popularity amongst rank and file citizens.
So, it may not be an exaggeration that someone in the top echelons of the Government may have asked Porinju to speak up in favour of the LTCG so as to soften the sentiments of investors.
Prima facie, the levy of tax on long-term capital gains in one form or the other appears imminent. It is better if we prepare ourselves for the eventuality by having dry gunpowder in our armoury to take advantage of the correction!