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PEs expect capital gains tax for unlisted equity to be lower than listed equity: TIW Capital Group's Ralhan

"Budget 2022 will focus on catapulting India to a higher growth orbit and the government will continue its efforts to create a rewarding ecosystem by building a partnership with private enterprises, consumers and investors to build a robust platform for India's growth."

January 30, 2022 / 11:52 AM IST
Budget 2022

Budget 2022

Budget 2022 will be watched with keen interest and critical eyes as India is at an extremely crucial stage of its growth journey. The general elections are still a few years away and the government can focus solely on the agenda of economic growth and mitigating the impact of the pandemic. In this context, we expect the government to focus heavily on furthering its reforms agenda and drive the country towards achieving the goal of becoming a $5 trillion economy.

Also read - Key Policies from Budget 2021 To Know Before the Upcoming Budget Session

As a private equity investor, we are long on India and a stakeholder in making India a stable, strong, and fast-growing economy. Our investments cut across sectors and therefore we are expecting the budget to push overall improvement in economic indicators, ease of doing business and further simplification of compliance, that benefits all businesses.

Also read - Budget 2022: Does public opinion matter?

We also expect the government to simplify taxation models in privately held companies, which will encourage entrepreneurship and channelise savings to private equity investments. Since the entrepreneurs and private equity investors take significant risks in building a company that creates a virtuous cycle of employment and economic growth, ideally the capital gains tax for unlisted equity should be lower than listed equity. But currently the situation is reverse with capital gains tax regime for unlisted equity being unfavourable in comparison, which we expect the government to at least bring on par. We also expect a rethink of tax on share buybacks as this can be an important way for entrepreneurs to increase stake in their companies and give exits to external investors.

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Also read - Union Budget 2022: Lawyers seek tax benefits, push for legal reforms

SMEs (small and medium enterprises) have been the focus area of our fund as they are the most critical growth engine of the Indian economy. They form the backbone of our economy playing a significant role in employment generation and employment sustenance. The government has supported the SME sector proactively during the challenging phase of COVID outbreak. The onerous environment is not over yet, and we expect the budget to provide continuing support to SMEs. One key expectation is extension of Emergency Credit Line Guarantee Scheme (ECLGS) for one more year. Additionally, the government can look to increase the working capital of SMEs by deferring their tax liabilities and making export income free for a few years. A variety of incentive schemes can be launched encouraging SMEs to carry out technology adoption, digitisation, capacity expansion, capital expenditure, R&D, and skill enhancement.

Also read - Budget 2022: It is time jobs become the centre of Budget

We believe that the Budget 2022 will focus on catapulting India to a higher growth orbit and the government will continue its efforts to create a rewarding ecosystem by building a partnership with private enterprises, consumers and investors to build a robust platform for India's growth.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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Mohit Ralhan is the Managing Partner and CIO of TIW Private Equity. Prior to TIW, he was an Investment & Operating Professional at Baring Private Equity Partners India Fund II and Fund III.
first published: Jan 30, 2022 07:49 am
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