Budget 2023: Consistency, not tinkering with taxes, is the need of the hour, says Aashish Sommaiyaa

Aashish Somaiyaa, White Oak Capital Management

"Hope the government does not change the corporate or personal tax structure in the upcoming union budget. Consistency, not tinkering with taxes is the need of the hour," said Aashish Sommaiyaa, CEO, White Oak Capital Management, in an exclusive New Year conversation with Moneycontrol. He added that linking tax exemption with inflation would be a welcome move.

Aashish also hoped that the government would do more to modernise agriculture, since the idea was to make it more productive to live in India's villages so that everybody did not move to urban areas.

Below are edited excerpts of the conversation.

Your expectations from the upcoming union budget, because it comes amid fears of global recession, more rate hikes, and a slowing economy?

There is a lot of talk on the rationalisation of the whole capital gains structure. Whether we talk about listed or unlisted equity, fixed income, real estate, etc., the reality is that it is complex.

Short- and long-term are defined differently. We have different tenures with different rates of taxation. There is talk about aligning all that, and it would be interesting to see how that plays out. It’ll be great if some rationalisation and standardisation are done.

That way, everybody gets clarity. Because right now there is some amount of speculation.

Our dividend taxation is quite onerous, because we tax at multiple levels. I really hope that somebody looks at dividend taxation.

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The last thing is that we have long term capital gains (LTCG) tax, STT (securities transaction tax), and taxes on the dividend. Equity as an asset class is heavily taxed.

As a country, we need risk capital for growth. Apart from rationalisation, somebody needs to look at equity as an asset class and the taxation on it. Today, fixed income taxation is attractive compared to equity. Ten years back equity was the asset class with the most attractive tax structure.

Other than that, over the years policies have become simpler compared to how it was earlier, especially after GST.

The sectors you think the government would focus on in the budget?

The street does not think the government will prioritise any one sector over another. But this government has been quite consistent in terms of their focus on investing more, on driving the economy with government-led capex, with an emphasis on infrastructure and defence indigenisation. I expect them to continue on that path.

But I also think that we really need to invest more in the rural sector, in agri, and agri-related businesses. With the emphasis on infrastructure, we can see airports, ports, roads, and the railways being upgraded. Similarly, we need to invest in modernising agriculture, and attract investment in the rural sector, make it more productive to live in India's villages, because we can’t move everybody to the urban areas.

Personal income up to Rs 5 lakh is exempt from taxation. This has been the case since 2019-2020 as it is not indexed against inflation. With higher inflation eroding national income, is there a chance that tax exemption will be pegged to inflation?

I hope that personal and corporate income taxes aren’t changed. At the lower end, the government has tried to tax less and less. I think the exemption limit has been raised a couple of times in the last four or five years. Yes, instead of arbitrarily raising it, they can link it to inflation. That would be a welcome move.

With 43-44 percent taxation, our tax structure is very heavy at the top, especially considering that things like dividends, etc., face double taxation.

But I still hope that they don't change the corporate tax, personal tax, etc., as consistency is more important than anything else .

We are seeing that direct taxes are rising, that more people are coming into the tax net. Hopefully, we have a good thing going, so best not to tinker with it. Maybe just make it easier and easier for people to file their taxes. I think working on processes is more important than actually working on rates and suchlike.