Speaking at an event on Saturday, Modi had said: “Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud.”
Modi further added that “to some extent, the low contribution of taxes may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income. I call upon you to think about the contribution of market participants to the exchequer. We should consider methods for increasing it in a fair, efficient and transparent way.” Modi also said the government will not hesitate to take tough decisions.
The Prime Minister’s comments had led to fears that stocks are likely to come under pressure, with several market players saying earlier in the day that there could be a knee-jerk reaction, as stocks resume trading on Monday.
“There could be a negative reaction. The markets will eye clarification on the issue. Right now, there is already uncertainty in the market and the PM’s comments could add to that,” said Sandip Sabharwal, an investment advisor.
Currently, long-term capital gains (LTCG) on the sale of listed securities are exempt from taxes. LTCG are profit on sale of shares on a stock exchange platform after a holding period of one year or more. Meanwhile, short-term capital gains (STCG), profits on sale of shares held for less than 12 months, are taxed at a flat rate of 15 per cent. Besides these, all stock market transactions also attract securities transaction tax (STT) in a range between 0.017 per cent and 0.125 per cent.
“There was a fear in the market that LTCG could be introduced. You cannot be milking a sector, which is already paying decent taxes,” said Ambareesh Baliga, an independent market expert.
Deven Choksey, managing director, KR Choksey Investment Managers said the PM’s comments could be aimed at foreign investors and not domestic investors.
“A lot of foreign investors investing through participatory notes (P-notes) are making disproportionate gains and are paying zero of negligible tax. Most domestic investors are paying taxes. STT is getting collected on all transactions. STCG is taxed at 15 per cent. PM’s comments could be directed at overseas investors. However, the market will wait for clarity on the issue,” he said.