Sanat Vallikappen

Budget 2008-09 is eagerly awaited by capital market players. While there is little that needs to be done as far as the functioning of the capital markets is concerned, market players are unanimous that certain taxes should be rationalised for better corporate performance, hence giving a leg up to Indian stocks that have been hit hard in this global meltdown.

“With corporate tax collections going up by almost 45% compared to last year’s, there is a need to bring down the 30% tax or the surcharge,” said Motilal Oswal, chairman and managing director, Motilal Oswal Securities. He feels this will lead to better compliance, and hence, higher collections. For companies, it will result in healthier balance sheets, and therefore, better market performance.

Meanwhile, Rashesh Shah, chief executive officer and managing director of Edelweiss, feels companies will do much better without the fringe benefit tax (FBT).

“It should be taken away completely or rationalised,” he says.

Marketmen also feel that the Budget should clearly signal that India is on its way to achieving fiscal targets it had set for itself.

“The finance minister needs to indicate that the government’s mandate to reduce fiscal deficit to 3%, and completely wipe out revenue deficit by March 2009 is on track,” says Ambitabh Chakraborty, president (equity), Religare Securities.

Allocation from foreign institutional investors (FIIs) to India has been non-existent this calendar — in fact, they have pulled out close to Rs 12,000 crore from India so far this year.

“This will change only if the government indicates that it’s on course to achieve its fiscal targets,” says Chakraborty, adding that the finance minister should also make it clear whether India is on course to move towards a goods and services tax (GST) by 2010, a target he had set earlier.

While that’s the broad view, there are certain minor aspects specific to the capital markets as well.

Oswal, for instance, feels there should be a rationalisation of tax structures for those participating in equity.

“With volumes increasing dramatically in the markets in the last one year, there is a need to rationalise the securities transaction tax, stamp duty and service tax that one pays for dealing in shares,” he says.

Currently, there is a short-term capital gains tax of 10%, while there is no long-term capital gains tax (for holding an investment for more than a year), apart from all the other levies (see Rear Window).

Another aspect on Oswal’s wishlist is a well-defined categorisation of income generated from transacting in shares: on whether it’s treated as business income or longterm/short-term capital gains.

“As of now, this is very ad hoc, subjective and made at the discretion of the taxman,” he says.

At a much broader level, there is also a call for the Budget to encourage channelisation of savings into equity.

“Apart from equity-linked saving schemes (ELSS), there are no other tax incentives for investing in equity,” says Narayan SA, managing director, Kotak Securities.

As of now, the employees’ provident fund (EPF) cannot invest into equity.

“There needs to be something like the 401(k) plans here in India, so that salaried employees can participate in the returns that equity has been generating,” said Narayan.

401(k) plans are employer-sponsored retirement plans in the US, which allow employees to invest part of their salary in an assortment of mutual funds. Income tax on this part of the salary is deferred till the employee withdraws from the plan.

Apart from this, the view is that the finance minister should not tinker much.

Rashesh of Edelweiss echoes the sentiment. “If status quo is maintained, everyone will be happy,” he says.

However, both Narayan and Oswal, who run brokerages, stress on the shortage of skilled manpower to run their businesses.

“There should be allocation of funds for education at various levels,” says Narayan.

“What is growth without an employable workforce to capture and take advantage of this growth?” asks Oswal.

Source : DNA