Skip to main content

A Tax That The Country Should Axe Right Away

 


As economic forecasters cast a darker shade of gloom over our growth prospects this fiscal year, we need a surge of investment in businesses to counter a covid-led crisis and create jobs. Thankfully, there is plenty of capital around on the lookout for big returns. India needs to make the most of such money. Towards this end, a parliamentary panel headed by Lok Sabha member Jayant Sinha has proposed the abolition of long-term capital gains (LTCG) tax on investments in start-ups made by collective investment vehicles, such as angel funds, alternative investment funds and limited liability partnerships. In a report tabled in Parliament on Tuesday, the committee sought the suspension of that tax for “at least the next two years". This basic proposal should be adopted forthwith, as our start-up ecosystem needs a spur, though not just for a limited time frame, but for good. It should be applicable to all investors, not just a chosen few. New business ventures have a high rate of mortality, and, in general, big risk-takers deserve big rewards. However, there are many low risk-takers who bear that burden as well. Let’s relieve them of LTCG too.

It is well known that a country’s entrepreneurial verve often depends on its tax policy. India’s grisly framework has long been criticized for perverse incentives that result in a variety of market distortions. From wealthy individuals to investment firms, many domestic investors have been wary of funnelling funds into start-ups because of uncertainty over cashing out with rewards that justify the risks borne. This has squeezed the access our entrepreneurs have had to local seed finance. Consider this. India’s LTCG tax on the sale of listed shares—levied if sold after a single year of purchase—is 10% on the gains made, while the same on unlisted stock is 20%, and that too, with “long term" defined as at least two years. Then there is a surcharge of 25-37% to be paid over and above that tax on unlisted shares, a charge that foreign investors need not pay. Is it any surprise that some 80% of our start-up money, as the panel’s report says, comes from abroad through venture capital and private equity funds? We should have the same rules for all classes of investors. Relieving them of LTCG worries may also offer another major benefit. It could crush an incentive for striking overseas deals that involve the transfer of stakes in equity-holding vehicles off our local tax radar. This would allow clearer patterns of ownership to emerge.

Some of the panel’s other ideas seem less doable. It wants pension funds and insurers, for example, to invest in private equity funds that can then fund start-ups. Done poorly, this could spell risk-return and asset-liability mismatches. Meanwhile, start-ups are grappling with a regulatory initiative to see that public share offers—the chief way for early-stage investors to cash out—made abroad are followed by local public issues, with all the extra listing criteria of Indian bourses needing to be met. Dual listing could deter start-up funding if it becomes harder for such firms to go public. Sure, the abolition of LTCG tax will help. But the Centre should also rid listed equities of this levy on gains of over 1 lakh. With bank deposits currently paying less than inflation, liquid equity portfolios are all that millions of relatively risk-averse retirees and elderly folk (among others) have to rely on for their rising expenses. Surely, they deserve a break too.

 Sandip Ginodia , CEO

ALTIUS INVESTECH PVT LTD

We deal in over 60 unlisted companies with 15 years of experience 

For latest prices visit : www.abhisheksecurities.com/unlisted.htm / call : 09830271248 .

Email : ginodiasandip1@gmail.com


Comments

Popular posts from this blog

Reliance's JioMart is averaging half a million orders per day; WhatsApp driving growth

  JioMart , Reliance's online-to-offline commerce  platform that launched in May , has scaled up rapidly, riding on the pandemic-fuelled digital acceleration. The service, which went   live in 200 cities across India, is currently processing an average of  500,000 orders per day. " We can go even higher on peak days",  Jio Platforms CEO   Kiran Thomas  revealed at the Facebook for Fuel India 2020 event. He said, "JioMart is empowering millions of  kiranas  and small merchants through the simple and secure platform of WhatsApp, and linking them to Reliance Retail's pan-India supply chain. We expect to grow manifold in future, and are optimistic about enabling new cohorts of users and making it easier for them to shop for daily essentials."  "Customers are transacting seamlessly on JioMart and the  conversational nature of the service  enabled by WhatsApp has made people adapt to it intuitively," he added. Reliance also stated that it will continue t

Stock broker SMC Global files for IPO

F inancial services company SMC Global Securities has filed draft red herring prospectus with SEBI for public issue of 1,58,67,380 equity shares of face value of Rs 2 each. The issue comprises a fresh issue of 79,33,690 equity shares by the company and an offer for sale of 79,33,690 shares by Millennium India Acquisition Company Inc. As of September 30, 2012, "We service our broking clients through a network of 43 branches and 2,521 registered sub-brokers and authorized persons spread in more than 500 cities and towns. We have also established an office in Dubai for brokerage and trading activities in that region," the company said. SMC has reported a loss of Rs 0.42 crore and total revenues of Rs 292.24 crore in the year ended March 31, 2012. "The proceeds of the fresh issue shall be utilised for margin maintenance with stock exchanges; part repayment of term loan; investments into subsidiary, SMC Comtrade; and general corporate purposes," according to p

Zomato, Swiggy score 1/10 on working conditions for their workers – ET Retail

Some of India's biggest startups have ranked near the bottom when it comes to  working conditions  for their gig  workers , according to a report released Wednesday. While  Swiggy ,  Zomato  and Uber India scored 1/10, Urban Company and Flipkart’s logistics arm EKart scored the highest 8/10 and 7/10, respectively, ‘ Fairwork India Ratings  2020: Labour Standards in the Platform Economy’  showed . The report assessed the companies on five principles: fair play, fair conditions, fair contracts, fair management, and fair representation. Deepinder Goyal, chief executive officer of Zomato Media Pvt. Ltd., acknowledged the ratings on Twitter. “Zomato ranked at the bottom of 2020 Fairwork India scores. We knew we had things to work on, but we didn’t know that there is so much room for improvement.” The company takes full responsibility and “will leave no stone unturned to perform better in the rankings next year,” he added. Zomato received a 4/10 in last year's report. According t