As the countdown to Union Budget 2018 begins the focus is back on tax rates. The two big questions that confront the investors is will there be reduction in corporate taxes and will there be introduction of long-term capital gains (LTCG) on equities.
To discuss the above CNBC-TV18 spoke to Sudhir Kapadia, National Tax Leader, EY and Ketan Dalal, Managing Partner at Katalyst Advisors LLP.
Kapadia is of the belief that there is no case for raising any taxes in the upcoming Budget.
According to Kapadia, LTCG will only lead to lesser velocity of transactions in the market if for example the holding period is made two years instead of one year. This would lead to a dip in the Securities Transaction Tax (STT), he added.
So, if the government is looking at revenue optimization then there are other ways for them to monetize revenues than tweaking of LTCG. However, if the government is looking at longer term investment behaviour then they may look at LTCG, said Kapadia.
In a global scenario where US is looking at tax reforms and lower tax rates, the Indian government may not look at tweaking LTCG tax, said Kapadia.
Dalal said one cannot have both STT and LTCG in the equity markets. He also agrees with Kapadia that there is no case to increase tax rates.
According to Kapadia, India is the only major country with dividend distribution tax (DDT) and not a withholding tax on dividends. One can have an exemption for small shareholders but the government can look at bringing back classical system of dividend taxation, to manage the corporate tax rate and ensure that dividends are taxed only in the hands of major shareholders and not otherwise, he added.
Dalal also agrees with the Kapadia's view on dividend taxation.
For full discussion, watch video
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