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Budget 2018: Ten reasons to tax capital gains on shares

The reason for abolishing long term capital gains in 2004-05 was to ostensibly remove the disadvantage that domestic investors suffered vis-a-via investors coming from Mauritius.

January 10, 2018 / 15:17 IST
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By Latha Venkatesh CNBC TV-18

Every year the issue of taxing long-term capital gains (LTCG) in equities surfaces before the budget; markets squirm and sulk; the government buckles and retains this tax exemption leading to a post budget rally that extolls the budget. In this column I argue that the time has come to impose this tax on economic, political and moral grounds:

1. The first argument the proponents of the tax exemption advance is that Indian equities will end up becoming uncompetitive and unattractive to foreign investors. That bluff can be easily called. The attached table indicates that only five countries don’t tax capital gains from equities - Cayman Islands, Cyprus, Mauritius, Singapore and Hong Kong. The first two have a reputation of becoming tax shelters often for tax evaders while Singapore and Hong Kong, because of their city-state nature could historically grow into international financial centres by offering tax incentives.

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(Table source: Dhruva Advisors)

(Table source: Dhruva Advisors)