Arun Jaitley says market slump not due to LTCG tax, attributes it to global cues
The BSE Sensex shed over 800 points and the wider NSE Nifty 50 over 200 points a day after the finance minister presented Budget 2018-19 in the parliament.Updated: Feb 05, 2018 17:42 IST
Finance minister Arun Jaitley said on Monday the slump in the Indian stock market was not a reaction to the proposal to reintroduce the long-term capital gains tax on equities exceeding Rs 1 lakh at 10% and attributed the recent selloff to global cues.
“It is not due to the budget or the LTCG. Dow Jones has also fallen by over 2%,” Jaitley said on the sidelines of an event in New Delhi.
The LTCG tax is expected to bring in revenue of Rs 20,000 crore.
The finance minister’s remarks came after the Indian equity markets on Friday witnessed the steepest fall since November 2016, after LTCG tax was re-introduced in the Union budget for 2018-19, leading the BSE Sensex to shed over 800 points and the wider NSE Nifty 50 over 200 points in a single day.
The benchmark Bombay Stock Exchange (BSE) index fell for a fifth straight session on Monday and the broader NSE Nifty index hit its lowest in a month.
Reiterating the finance minister’s statement, finance and revenue secretary Hasmukh Adhia said equity investments still remain attractive as only a 10% LTCG tax has been imposed on them. Adhia said that in comparison to other asset classes the LTCG tax is lower on equities and the government has decided to “grandfather” gains made until January 31, 2018.
“People don’t know the global market. But, there is a strong connection of all equity markets now. The MSCI All-Country Index of equity market went down by 3.4% in the last week and particularly in the last two days,” Adhia said at an event organised by the Confederation of Indian Industry (CII).
“Now, if the entire world’s stock markets have gone down, naturally it will have its own ripple effect on the Indian stock markets. It is not LTCG effect, but the overall effect of equity markets which has changed in the other countries of the world also,” he added.
Adhia, however, acknowledged that the timing of the re-institutionalising of the tax was bad.
“The security transaction tax is a very small tax on the transaction and the income that we get out of it is very small. It is only Rs 9,000 crore. There are numbers of more short-term transactions rather than long-term transactions in the stock exchange,” he said.
“The income of Rs. 9,000 crore must be coming more from short-term transactions rather than long-term, and we have made no change in the short-term transaction,” he added
“In spite of putting a nominal 10% tax on the long-term capital gain on equity, it still remains a very subsidised regime. It is unfortunate that our move came at a very wrong time because of global markets also going down.”
According to market observers, disappointing announcements in the budget such as the reintroduction of the LTCG tax and a higher-than-expected fiscal deficit target for 2018-19 continued to dampen investors’ risk-taking appetite.