A day after Prime Minister Narendra Modi mooted the need for a new approach to taxation in the financial markets, citing the low contribution to the exchequer from those who make profits on the bourses, Finance Minister Arun Jaitley on Sunday said the Centre had no intention to impose a long-term capital gains tax on securities market transactions.
He said it was an ‘absolutely erroneous’ interpretation of Mr. Modi’s words spoken at an event hosted by the stock market watchdog, the Securities and Exchange Board of India (SEBI). The Finance Minister said the Prime Minister’s speech was with regard to all sections, including market players, contributing to the national exchequer.
'PM had only warned against fraud'
Mr. Jaitley said that Prime Minister Narendra Modi had not singled out low tax revenue from securities market transactions but wanted all sections, including market players, contributing to the national exchequer.
“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 from the markets is low,” Mr. Modi had said on Saturday at an event hosted by SEBI, asking the regulator to be extremely vigilant as this could be the result of ‘illegal activities and fraud’ to some extent.
“To some extent, the low 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. Market participants’ contribution to the exchequer should be reviewed in a fair and transparent way,” Mr. Modi had said.
“Now, it is time to come up with a good design that is simple, transparent, fair and progressive,” he added.
The Finance Minister said that this “has been misinterpreted in some sections of media which have started speculating that this is an indirect reference to the fact that there could be long-term capital gains tax on security transactions.”
“The PM had made no such statement directly or indirectly. I would like to clarify that there is no occasion or opportunity for someone to reach such a conclusion because this is not what the Prime Minister said nor is it the intention of the government as has been reported in sections of the media,” Mr. Jaitley said.
Mr. Modi had said it is not enough for securities markets to be considered successful by international investors or financial experts.
“Wealth creation is good, but for me, that is not the main purpose. The real value of our securities markets lies in the contribution to the development of the nation, the improvement of all sectors and to the welfare of the citizens,” he had said.
Mr. Modi had also redflagged the dominance of derivatives in the financial markets and said this was akin to the tail—derivatives that are used to manage risks —wagging the dog—or spot markets. He had also said that the commodity markets should not just remain ‘avenues for speculation’ but also become useful for farmers.
