What the Finance Minister needs to do to revive stock markets
Over the weekend there has been a lot of optimism and enthusiasm built round the meeting between the PM and the finance minister. With ANZ Bank now reducing India’s full year GDP growth target to just 6.2%, the problem is almost real. Here is what is needed.
Withdraw the FPI tax
The higher surcharge that the budget imposed on the super rich was really uncalled for. Higher income groups in India are already heavily taxed and it will only encourage structures to avoid the tax. More so, since this also impacts the FPIs structured as trusts. India is one of the few countries that taxes capital gains made by FPIs and that is only adding to the cost of transacting in the Indian markets. It is time to get rid of the HNI tax to give a better comfort zone for FPIs to operate in India.
Buyback tax is out of place
Buyback tax was again uncalled for. Taxing all buybacks at 20% irrespective of your cost of acquisition is likely to discourage companies and investors. The whole idea of a buyback is for a company to return capital to share holders when they don’t have better applications. Taxing that is not a great idea; especially when the weak market conditions could see a lot of companies buying back shares to give out the right signal to shareholders. The buyback tax could just distort this strategy.
LTCG tax has to go too
With the steep tax on long term capital gains, the government has effectively discouraged two things. Firstly, it has discouraged investors from booking profits to keep the money churning. Secondly, it has also added a slice of uncertainty to the long term financial plans of a whole lot of middle class investors. These investors were largely counting on the tax-free status of equity funds and now they will have to rework their plans all over again. But the big challenge is that LTCG tax hardly adds revenues and that was the reason it was scrapped in the past. The equity markets have got used to the STT and have now accepted that as part of their investment process. Scrapping LTCG tax will be a big boost.
Simplifying GST process
GST was a great idea but its efficiencies are yet to be realized due to flaws in the way it is structured. To begin with, the registration process is too cumbersome. That is still keeping a lot of small businesses away. The answer is to offer a flat rate of GST up to a certain threshold and just link it to bank funding and all state incentives. Secondly, with too many slabs, the basic purpose of one nation, one tax is defeated. With some minor tweaks, the GST can be converted into an engine of growth. The FM may not be able to do all these, but a start would be a welcome boost!