Union Finance Minister Arun Jaitley on Sunday clarified that there is no plan to impose long-term capital gains tax on securities investments. Speaking to CNBC-TV18, SP Tulsian says that if there is long-term capital gain tax then that should not be along with the securities transaction tax (STT).
Union Finance Minister Arun Jaitley on Sunday clarified that there is no plan to impose long-term capital gains tax on securities investments, after a statement by Prime Minister Narendra Modi raised such a suspicion.
Speaking to CNBC-TV18, market expert SP Tulsian says that there is a disconnect between the understanding of the ministry and of the market because they always think that the market is not paying any amount of money.
He said, this is generally the tendency of the exchequer that they always levy some kind of tax and they always refrain from reversing it back and keep expecting higher amount.
He is of the opinion that if there is long-term capital gain tax (of around 5 percent or 10 percent) then that should not be along with the securities transaction tax (STT).
Below is the verbatim transcript of SP Tulsian’s interview to Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Of course there is this long-term capital gains tax fear that the street has, so that is something that has spooked the market but along with that last week there was this clarification that came out from the I-T department on this indirect transfer provision as well as for offshore funds and that is something that is spooking the market too. How should a domestic retail investor read into all of this data points?
A: If you are a domestic investor then you should only be concerned with the fear of long-term capital gains tax and that has been clarified by the Finance Minister that nothing of that sort is seen coming in. However, market won’t be accepting the clarification because when the Prime Minister is giving some statement and when we see that the whole ministry or the thought process of Prime Minister are getting on the drawing board or getting implemented people fear that there is something cooking in the minds of the policy makers.
I think that there is lot of confusion or may be the disconnect between the understanding of the ministry and of the market because they always think that the market is not paying any amount of money. Because, this is generally the tendency of the exchequer that they always levy some kind of tax and they always refrain from reversing it back and keep expecting higher amount. The case in points are the dividend distribution tax, the case in points are securities transaction tax (STT), and the case in points are the super rich tax. Always you know in the three places there was some kind of what you call quid pro quo or may be the kind of trade off that these three taxes are levied with a limited time period but that has not be adhered to.
People are now fearing that maybe long-term capital gain can get enlarged to about one to three years, but ministry should also understand the kind of pain because I am just giving you this feedback which I get from my many members and investors. Now take the case of short-term capital gains where the taxes are at 15 percent, even they are harassed by the department on the pre-text of taking that as a business profit. Those are tax that are higher rate. So, what department or the government should do is that they should come out with an en bloc clarifications.
I am not against putting any long-term capital gain tax of say 5 percent or 10 percent, but then that should not be along with the securities transaction tax (STT). You remove STT or you put short-term capital gains and long-term capital gains on tax at par and put some levy of taxes there. Because the kind of misuse of LTCG and the re-opening of the cases having made by the department for last five or six years are also big evasion having made by the tax payers which is causing problem or which is a sore point for the government.
In fact, there are again disconnect on both the sides; one should not take the things in isolation that only the Prime Minister has said that the tax collection should increase. Even the assessee and all others should realise the kind of misuse which has compelled the government to take all these steps. However, one thing is there that this fear of any kind of tinkering with the capital market will keep disturbing the market in the near-term. However, I don’t think that because I have been maintaining this view that these are just some additional what you call brickbats or maybe the weakness which are seen coming in which all should get over by the expiry of this December series.
Generally, in the last one week you don’t have any respite. I was keeping a positive stance on December series which has not worked out well because of the non-currency, the normalisation of the currency supply. However, I am quite confident that all this weakness will come to an end by this Thursday. January onwards we will start and maybe the interim government will also come out with some other policy. They may not retract these statements directly again and again but they will keep giving hints on the reduction of the corporate tax by about couple of percentage, rejig of the personal taxation and all sort of things where a lot of positives can be expected from the government.
Latha: Is it possible that the result season may not be as bad as the markets feared. Obviously people are going to report lower sales than what people were estimating before demonetisation but is there a scope for the shock being less shocking?
A: Firstly even if you bank on the Q3 number that they are not seen to be as bad which I have been saying that it will not be seen as bad. Still those results will get to be seen maybe by third week of January, maybe after January 20 because except for IT companies none of the companies really announces the results and maybe with the Budget now scheduled for February 1 many of the even bigger companies will postpone their Q3 numbers post budget because you have sufficient time to declare the numbers.
As for the performance of each company, maybe those who are into the export oriented or maybe the natural resources type of company they are not going to get anyway affected. On the contrary the results of those companies are seen to be quite good. Maybe the kind of results where we have been having apprehension are all maybe automobiles and the NBFC kind of stocks and the negative expectation of the bad Q3 numbers have largely got factored in. That is what I would say that the key triggers for the markets to get bottomed out is on the expiry day because the kind of long built up which we have been seeing the main culprit being Bharat Financials.
If you see that the selling scene from the FII along with the long liquidations which we have been seeing, these positions happening will all get squared off or all will come to the sanity by the end of the expiry. So, that is what my thesis is that yes, maybe with expiry you will be seeing that the market getting bottomed out and from Friday for January series things will start looking up.
Latha: Your extraordinarily well performing recommendations Jayant Agro, Thirumalai, Borosil Glass, Bhageria, do you think people should continue with these purchases? Are some of them expensive at current levels, what is your advice?
A: A while back I have said that those who are into the export I don't think that any companies are likely to get affected. The two companies which you have mentioned, one is the Bhageria Industries and second is the Jayant Agro both are into exports. Bhageria makes Vinyl Sulphone - again the pollution control norms are getting tighter for the Chinese manufacturers there where the units are getting closed. Same thing is for Jayant Agro - castor oil and castor derivatives where they have a long term tie up with a French company as well as two Japanese companies where more than 60 percent of that gets exported and having varied application.
So, I won't be worried on that but post our recommendation maybe Bhageria has risen by about 200-400 percent in this calendar year. Same thing has happened with Jayant Agro. Even at the current price when it is down, it has risen by more than 100 percent in the last 6 months or so.
Coming specifically on the other stocks like Borosil Glass, that seems to be quite expensive now and maybe the low floating stock or low volume is keeping it moving on. So, maybe will advise profit booking.
Coming on Thirumalai Chemical, again you don't have much of export of Phthalic Anhydride, Maleic Anhydride but still I continue to have my positive bias continuing on that company also but profit booking will not be a bad idea to go with Thirumalai Chemical.
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