LTCG @ 10% Budget 2018 FY19

(Gaurav Agarwal) #241

Interesting point of view on banning SGX Nifty.


This reminds me of some sports game that did not get the requisite license to use the name of the clubs and players and so used the closest fake names but intelligently provided for users to upload data packs anonymously with player/club data. The first thing anyone did after installing the game was to update the data from the marketplace.

It worked pretty much the same way as a licensed product would. There wasn’t much the regulator of the sport could do as the developer hid behind the legal veil that the game he distributed didn’t use the real licensed names. In essence the regulator lost out on the royalty payments and couldn’t do a thing to stop what they intended to stop.

Perhaps something similar could happen here where instead of Nifty, you could create an index named Thrifty with the same composition and continue doing what you are doing. There is enough incentive for customers (Its like how duty on Gold incentivises smuggling) to continue to use the product considering the alternative is to move to a walled garden i.e India with currency risk (although GIFT city would allow for dollar contracts) and higher tax structure. I don’t know if SGX would stoop to that level but someone willing can and should make use of the opportunity.

(Gaurav Agarwal) #243

We need to monitor closely what MSCI does. This could has real effect on Indian market.

(gkrish) #244

With no disrespect to anyone on this forum, I can’t imagine why any investor - and that’s everyone on this forum, would like the LTCG tax. This is an example of a greedy government that has lost its plot.

Just to be clear, I used to be a hardcore BJP supporter until about six months back, when I realized this govt has just frittered away a strong mandate over the past four years. It keeps reassuring its citizens that it uses its money wisely, but as a citizen I am yet to see the benefits of its plans and roadmaps. Today’s news…they are giving out mobile phones to voters in Tripura.

This notion that the wealthy should pay taxes for the betterment of poor is good only if the money reaches the poor. Be it sanitation or cleaning of rivers or providing homes or creating jobs, I see little to no execution. Mr.Jaitley and Mr.Hasmukh (who ironically is making everyone cry) Adhia must go.Their inability to draft the right laws with teeth to levy indirect taxes and make business owners (including SMEs who are very profitable but are not paying a penny in taxes) is making them continue to squeeze the same small tax paying population over and over again directly and indirectly.

Their view that LTCG only affects businesses is incorrect. Hundreds of thousands of retail investors, mostly salaried class, invest in equities for the long-term, as I do. And if they wanted to go after the businesses who were investing in stocks instead of their businesses, they could have implemented LTCG for businesses only.

Public listed companies that are profitable pay taxes already and are also taxed on their dividend distributions. We already have one of the highest tax slabs for HNI and every time the PM gets an new idea like swachch bharat, it is they who pay the surcharge or cess. Haven’t they paid enough already. Can this govt. cut them also a break? If it can’t and they want to compare themselves with the developed nations like US and UK, let them provide the kind of public infrastructure in the form of education, public transport, water, power, and health like they do.

We are probably the only country in the world that has tax on each transaction (STT) in addition to Capital Gains. When will we learn from countries like Singapore and Hong Kong where tax rates are low that cutting direct taxes boosts the economy through increased expenditure that will result in more indirect taxes?

I hope there is a big backlash due to this increasingly greedy approach of the government and I hope we either see a reduction in income taxes (both personal and corporate) or go back to no LTCG. As one other member noted, I dread to see the next budget where they would raise LTCG and STCG just because they can, and none of us would protest.

(s) #245

Greed is a personal benefit term. If government had some intention of greed it would have played populist card. They have played fair and growth path that is the only way to go. Money will have buying power only if creates value. See at different currencies compared to Indian Rupee , even a small country like Singapore$, Malasia Ringgit, Thailand Baht are way ahead of Indian Rupee forget about other developed country. Think deeply what makes the difference some of these countries are not rich in Natural resources. Government needs money for development of country… No one wants to part with so who will pay for building a Nation. These are my personal views and it is always good to understand different perspectives.

(gkrish) #246

Agreed. My point is that the government is going after the same small tax paying population in 10 different ways instead of going after the elephant in the room - indirect taxes (including increasing the rate of STT to collect the same as an editorial in the times mentioned today) and going after profitable businesses that are not paying taxes.

(s) #247

11 lakh tax payers with above 11 lakh income was 2016 tax reporting…That is also changing…for small tax payer it is still tax haven no LTCG till 1 lakh. Dividend till 10 lakh tax free. January 31 is grand father day which already is a peak in its kind so small investor still has sufficient safe guards… The big bulls need to be screaming but than they know how to make money in all kind of markets they will still do good. Individuals need to figure out where they stand.

(JKS) #248

Very apt and well written. The only counter I have is, even if you decide on the alternative force in 2019, will they reverse this course / LTCG tax ? (if they even say that they will even consider it, I will campaign for them !!) …Highly unlikely since I have never seen anything of relevance come down in India. I have only seen surcharges and cess go up, with each budget !!
We are the educated fools, who will continue to bleed and will be bled till the last drop comes out. Otherwise, how do you explain the 10% NPA of this country’s biggest lender - SBI. The so called 10% tax for businesses is nothing since there are 10s of their brethren don’t pay 100% of loan anyway. Recently a colleague of mine visited some farmers in Kerala. These are rich farmers and they get loans at 3-4% interest and in their history never paid anything back; neither interest, nor principal,never !! With farm loan waivers in every election season, 50% hike in MSP , fools like us will post these notes but don’t count for anything in electoral politics.

(Gaurav Agarwal) #249

Some more details coming out about GIFT city

(Divyanshu Bagga) #250

All taxes are assumed to be for the good of country, it is really disturbing. Think about it - what would you do with the money now paid as LTCG tax? Either you will consume some good or service, creating demand, which is good for the economy. Or, I hope, you would have invested your money in stocks or bonds (rather than hoarding cash or gold). Either way, that money would have been spent for economic growth. Instead, now it is placed in the hands of people like Mr. Hasmukh, who see it as easy money, precisely because they have not earned it. Do we really expect these people to use that money more wisely than free market?

It is not right to take money from those who have earned the right to spend it, and give it to those who haven’t earned that right. If this moral hazard continues to grow, we might become the next Venezuela, and that thought scares me.

(Gaurav Agarwal) #256

(Aravind) #257

I’ll respond to gkrish’s tirade with facts later. But Kalyan’s post amused me. Who is responsible for NPA problem, doles, burgeoning subsidies (ring fenced by law) and numerous scams that afflicted us? The alternative force that you talk of, Kalyan. GST hasn’t even been in force for a year but it’s written off even though revenue receipts are increasing more than ever, highest ever base of tax payers (both direct and indirect). This govt. has by and large cleaned up the balance sheet, maintained fiscal discipline, controlled inflation to a degree, focused hugely on infrastructure, sanitation (rural sanitation coverage 76% as opposed to 39% when they came to govt.), reduced subsidies, weeded out fake beneficiaries of schemes, implemented DBT in a big way saving 61K crs, cleaning up NPAs with bankruptcy code, NCLT tribunal and insolvency proceedings but taxing LTCG gains >1 lakh a year is a no go and will make you a committed opponent even though the scams and screwing up the economy are the legacy of this ‘alternative force’. Equity was treated so preferentially compared to asset classes whether it be duration, or tax rate (0%). You guys think about businesses not paying taxes at the same time want to ring fence your own preferential treatment. Cognitive dissonance in a nutshell. Of course, loophole of exempting farm income needs to be closed, same as preferential, partial treatment of equities.

(Changu Mangu) #258

Having read this thread with quite a lot of amusement and some disgust, here is my view on reality.

The emotions of some members who find LTCG difficult to digest have run over from being against the policy to moving to against the government to moving to against our Prime Minister.

I neither am in favor of this or any government and nor against it. I simply believe all governments will take decisions, some decisions in their political interest and some decisions in the interest of the nation. We have to be able to accept both. Some of them will go right and some will go wrong. So, you may consider the views unblemished from that angle at least.

First off, just because of some small tax, some members should not have used language that was used above against the elected leader of our country and that has nothing to do with tax. It is just not ok. Control your emotions, else least among all other things, you will not be able to be a better investor on account of being highly emotional. We should always have a high amount of dignity while speaking about our elected head of state.

Now, let’s say you are not a stock market investor and you are the person who farms crops and end of the year finds out that due to low monsoons you have nothing left at the end of the year, what will be your opinion on government not supporting you? The data points to the fact of how many farmers committed suicide in the last decade; could you point me to a similar data on how many stock investors committed suicide? Please. The job of the government (any government) is to take care of all citizens. Not only citizens who expect stocks to go up every year. I think Mr. Adhia made it amply clear that they do not care much of the impact of their thinking on the stock markets. And that is how it should be. Their job is governance and allocating money to every strata of society and not only to capital market investors.

Now coming to the socialist mindset; this is a un intended consequence of some decisions taken a few decades back. Do you remember quota reservation and the agitations that followed, and the number of suicides by students because of reservation? Well the side affect of that was that obc’s were allocated a higher quota than merit (and although it was done to right a wrong) as is always the case, it has now taken a life of it’s own. Today the winners of the quota have reached senior positions in bureaucracy and are becoming decision makers. Expect them to understand more sympathetically the issues of the poorer class and design policies more helpful to the poorer and less privileged and less concern for those who’s biggest worry is LTCG and similar.

We stock investors are like the queen who said… if the poor do not have bread, let them eat cake.

Many comments above talk about “it should be merit based, we have earned our money” etc… Really. Most of us have money because our parents could send us to fancy schools not because we earned that right. The imbalances in our society should be solved, or else, the end result may not be funny for the queen.

Also, as stock investors we will also do better if money is spread to every national of the country and not only to those who have more than 1 lac purely in stock market profits booked (as there is no LTCG up to one lac pa) and that cannot be the focus of any government, if it was, I would be scared for our nation.

Be happy that your brothers and sisters in the country will get a better education, some healthcare, and the very hard working farmer will not kill himself and I think you will have a happier nation.

I honestly could say a lot more on what the government is doing that a few cannot see… and maybe I will sometime. But, please do calm down. Relax. It is a small tax. What is so wrong. Smile and be happy.

(Divyanshu Bagga) #259

The job of the government is to regulate the economy, not run the economy. We need government to maintain law and order, to maintain national security, and most importantly, to ensure that the basic necessities of everyone, including access to education, is met. We do need to make sure that everyone gets the opportunity to move up in life, which requires funding. So, some taxes are necessary.

But a lot of that money gets spent in activities which go beyond those goals, like running airlines, railways, telecom companies, or banks. That is a problem. Think about how much our economy could improve if these inefficient PSUs could be replaced by more efficient private companies. Well, they are in the process of privatisation, but it is not fast enough. It takes the control of economy out of the hands of bureaucrats and politicians, and that scares them. It is a perfectly natural human reaction; everyone likes to believe that they can make better decisions, that they can beat the market, and so we try to resist leaving resource allocation completely to free market. Is that a good choice?

I am sure some of you realise how difficult it is to beat market. For those who don’t agree, they are entitled to their own beliefs. In fact, that is what makes markets great; it allows everyone to vote according to their beliefs, rewarding those who have made good decisions with more voting power (their wealth), instead of having a central authority enforcing their beliefs on everyone.

Obviously, at this point, some will argue about wealth getting concentrated in few hands, and the need for wealth redistribution to level the playing field. But do you think having income taxes and taxes on Investments helps? I feel that it actually makes things worse ( The only taxes, I find justifiable, are taxes on consumption).

Wealth is not a static fixed commodity. The value of money comes from the right it grants over certain fraction of economy’s production. Now, this production is dynamic. We can redistribute the money equally, but if by doing so we remove the inventive to innovate, to produce efficiently, since there is no additional reward for efficiency, we make everyone poorer by reducing production. That is why socialism always ends in disaster. Alternatively, by building a meritocracy, through rewarding innovation and efficiency, we can raise the overall production, raising living standards for all, even with highly unequal wealth distribution. Now those taxes on income are actually reducing the rewards of hard work, they hinder people who actually deserve to be rich, and helps in maintaining the status-quo.

(s) #260

I guess we need to see in totality and context of corruption in politics and business environment with corporate biggies (Kingfisher, Sahara, Unitech…) and even small business men like Nirav Modi making money and trying to run away. Money is transitional but every one needs a fair chance to life , education, good infrastructure and basic other amenities. No LTCG was a waiver to promote equity culture. With stock markets rising it is a right kind of dampener. See the bright side of things

(Aravind) #261

So basically introducing LTCG tax on equities means we’re becoming Venezuela. Reductio ad absurdum. LTCG was levied on all assets (land, gold, housing, alternative assets) and equity was treated preferentially. Didn’t see such any tirade from anyone on why low yield fixed income assets have LTCG.

Levying taxes is socialism. Can only laugh at that. What you’re batting for is neoliberalism. By levying LTCG tax on equities, a step towards parity, equal treatment of other asset classes was taken. For someone who is passionate about free market, the very thought of govt. prodding resource allocation towards equities (artificially spruced by the govt. by making LTCG gains on equities 0, long term duration - 1 year) should be repulsive. Curiously and amusingly, it didn’t. Answer - Cognitive dissonance.

Hardly 5% of Indian population invest in equities. An overwhelming majority invest in fixed income assets where they pay tax on their income, pay taxes on their gains during accrual and finally on maturity amount. Not a hoot was given as to why equity should be treated differently compared to other asset classes. Did we see any passionate rants from these called ‘free market’ advocates or equity investors (They are not truly free market. If they are, why do they want equity to be treated differently? Let market decide the risk-return equation.) ? No, of course not. This is the very definition of privilege. All of us here are rich to uber rich (seeing median Indian household income is ~2L). We live in our own cocoon world where we don’t give a darn about the other 95%.

It’s all well and good without doing the math to bat for consumption tax and wanting income tax to be scrapped. It’s well known, indirect taxes and consumption tax impacts lower income people disproportionately and hugely relative to the others. Lower and middle classes have high consumption and nil, low to moderate disposable income. Rich have high consumption in absolute terms but compared to their NW, consumption % will be very less. Consumption tax will wreak havoc on the lower and middle income classes (It’s a cash flow problem. Simples) and make rich richer. Asking for scrapping of income tax, wanting preferential and treatment of equities is a moral hazard. Warren Buffett, Bill Gates and most of the innovators who reached the sky have batted for LTCG and revamp of tax regimes that is partial to LTCG. Why do you ignore them?

Basically, the entire rant comes down to this. Talk about govt. running businesses (which most here are against including me), evils of socialism (again we all know it), benefits of free market (we all to a degree understand), innovation, meritocracy, efficiency and other mantras (We all know the value of them) and then abhor, cry, whine, rant, against 10% LTCG tax on gains over 1 lakh. Wow. It’s 10% for godsake. Your return expectation now needs to be 10% higher. That’s all. Infact, as Rohit Chauhan posted on twitter, long term investing even now works. As someone here said, it may even work to our advantage with many people getting swayed by 15% STCG and preferring to book the gains. A bit of calm would do a world of good.

(Gaurav Agarwal) #262

Given only 5% of Indian population invest in Equities. Do GoI wish to attract more people to Equity investment? We do not know. Did GoI wished at some point in past to do so. The answer is Yes. How do we know, because they reduced the tax to incentive/attract investment in equity. Come invest in equity/industry not in FDs.

  1. Is investing in Equity more difficult and time consuming than investing in fixed deposits?
  2. Should we encourage people to learn equity investing, analyze & monitor companies or should we leave it to bankers?
  3. Do we need to incentive equity investing or debt funding of household saving should be our preferred mode of investment in companies?

Purpose of Tax is not just to shore up Govt revenue. Did GoI imposed 100% import duty on sugar to increase its revenue?

Differential tax rates also serves purpose of encouraging and discouraging particular behaviors amongst the people. What people are opposing most is a country obsessed with Gold looking for the very first time at encouraging industry/equity is being put through a speedbraker?

(Aravind) #263

You’re talking about something else. I doubt govt. cared about common people investing in equity. That’s a cover. They cared about money coming from big institutions.

Agreed wholly on the use of taxes by Govt. to encourage / discourage people towards certain behaviours. That’s what I was alluding to in my earlier post as well. But then don’t call it free market.

If 10% LTCG on gains over 1 lakh deters someone from long term investing, they do my shouldn’t be investing in equities. Period. If someone’s investment decisions are driven solely by tax considerations they shouldn’t even look at equity investing. How these people who can’t digest 10% LTCG on gains over 1 lakh/yr will hold their portfolio or even add to it when markets tank and their portfolio is a sea of red? Therein lies the contradiction.

We all know who benefitted from exemption of LTCG gains massively? It’s not your retail middle class investor. It’s us financially savvy folks, big institutions, FPIs, FIIs and corporates. Nothing wrong in admitting.

(s) #264

As a country we are obsessed with extremes. We either love it or hate it. We raise people in prominence to heights and we do not appreciate good values.Forget the terms socialism/capitalism Money has only two sides is a need/heads till it meets your life; requirement and greed/tails luxury and charity it will follow your will. Money is ingrained to such an extreme in our psych that so many companies cook book that was the innovation gone down the drain, it is not we do not have talent we put it in wrong use., No body appreciates the recent crackdown on such companies by the government. SEBI and RBI were mere dummies and now we see a clear role of these organizations. Income tax department was the most in accessible department of government. Railways was considered the biggest house of corruption. Every government organisation is shaping up and showing leadership. Government understands the need to divest and they know to ensure the value of the company they are divesting and it is not just to siphon off money from bidders. RTI has made public departments liable to public. Is it actually happening on ground might be a far cry but at least we know some body has our back and one day it will be more responsive as we are the people who govern our self and I believe the next generation to be more progressive if we have a mindset free from seeing corruption at every nook and corner from getting driver license to getting liquor license.

(rskothari) #265

Good theory but is it practical?

In theory, why Govt should even run money business also and let private parties print their own currencies and let market decide which currency they use as legal tender and at market determined exchange rates. Free Market. We are already progressing towards it with Bitcoins like crypto currencies. Govt of India is unnecessarily saying that it is not legal tender of money.

I am not saying that govt should run businesses but disinvestment has picked up recently. Why we are doubting all theses govt actions just because there is now 10% LTCG on equities and it was all fair till now when taxation was there for other investment avenues but equities were given preferential treatment.