The personal income tax slab of 42.7 percent for the super-rich in India is probably at a three or four-decade high and needs to be rationalised, Porinju Veliyath, founder of Equity Intelligence India, said in an interview with Moneycontrol.
He said because of high taxation, some high net worth individuals are opting to take their business and residence overseas. He explained that the super-rich category controls a significant portion of the economy and the budget should contribute positively towards this class of investors.
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Veliyath was quick to add that he doesn’t expect the budget to spring any surprises because policymaking happens outside the budget. Edited excerpts:
Budget 2023 comes just a year ahead of elections and fears of a global recession. What do you think will delight or disappoint the markets?
The relevance of the budget in the stock market has really come down… Most of the policymaking happens outside the budget. And, of course, this is the last full-year budget before the elections. But I believe there won't be any significant surprises in this budget. There won't be any untoward, negative provisions too as far as the investing community is concerned.
We already have taxation in place on capital gains. But I think the finance minister has indicated a couple of times in the recent past about some tweaking.
We have a one-year timeframe for long-term capital gains – it can go to two or three years, which is reasonable, I think. Most countries are practising it that way. But I don't think there is going to be any big negative surprise, something like 15 percent short-term gains tax being made 20 percent. So these are not very important.
Staying invested and creating capital gains is more important. Investors should be focusing on that, then paying the tax afterwards. So that is what is most important for the investing community.
Do you expect rationalisation of durations playing out for long-term capital gains that could probably be positive for the markets?
Yeah, some kind of rationalisation among asset classes in terms of capital gains tax – that is indicated already. It can happen. But there will not be any significant impact on investors or investor sentiment…
And we have personal income tax. That’s very important because nowadays dividends are taxed at that rate. We already have very high personal income tax – it is taxed up to 43 percent.
You know, we have another half a dozen or maybe one dozen other luxury local taxes beyond that. So in that kind of environment, some high net worth individuals, I understand, are not comfortable. Some of them are shifting their businesses or place of residence to save on this taxation.
So there won't be negative surprises. There could be some positive surprises, you know, that kind of high income tax slab could be brought down, some kind of rationalisation or sobering could happen.
There is a huge discrepancy in India between the super-rich and the other 99 percent of the population. What would delight the market more – a tweak in taxation for the super-rich or the middle-class?
This 1 percent of the population holds a significant portion of the economy or wealth. It is not only in India, it is all over. Globally, I think every country is like that.
Just coming to the equity part, how investors are making money or creating wealth or paying taxes, there is some data. India has around 800,000 dollar millionaires. Infosys has 40. Infosys has created 30,000 millionaires only through employee stock options. A lot of people have become millionaires by holding or investing in Infosys stocks. And there are many other companies like TCS or large Indian IT companies that have created maybe 200,000 or 300,000 dollar millionaires in India.
And taxation – whatever said and done – till now has been very low. Till recently, it was zero tax for long-term gains and 10-15 percent for short-term gains. So, equity investing is the best way to save on tax and to feel the magic of compounding. So that is something amazing. And the way our economy is moving in a very different kind of orbit, it's something we all are looking at. We are experiencing it on the ground.
So recently, our Prime Minister was talking about how India's best era is coming. I strongly believe so. We have created the platform for that environment for growing at a much faster rate. So India is poised to move into a different economic growth orbit. And we need that.
We need that kind of a higher orbit and growth to feed our 1.4 billion people. It's not a small thing. It's a huge responsibility. And I'm really happy with the way the current regime has been doing things with long-term policymaking. On the economic front, it's doing a fantastic job… Every investor, every equity investor, everybody is feeling that.
Now coming to job creation. So, once the economy progresses at a higher speed, in a [higher] orbit, all those other things will happen. We cannot just create jobs for the sake of it. Only economic progress will create jobs.
How do you gauge sentiment right now as we head to the budget? Do you think it's any different?
So, I have only been talking about this high personal income tax of 42.7 percent. First of all, it doesn't make a lot of money for the government. It is only sentimental – when people say India's personal income tax is [as much as] 42.7 percent, then you have to pay so much of GST when you spend money and there are so many other taxes. But this is not very important. This is not going to give any structural problems to our economic growth or progress.
For India, it's a once-in-a-decade opportunity in terms of economic progress, and I am very confident we are doing the best to take advantage of the opportunity.
Geopolitical turbulence has been the highest in the recent past if you see in terms of the relationship between countries, global trade and all those kinds of aspects. So I think it very much favours India's economic progress, going forward. And as a government, the current regime has done a wonderful job in that regard.
You know, it's something amazing. India has never been so powerful in the past. We are feeling that power as a nation. We have a voice today globally.
