Tax, STT and Windfall tax.

The only thing certain about Tax is, it is always taxing. 

India abolished LTCG(Long Term Capital Gains) tax some years back while STT(Securities Transaction Tax) was introduced. After few years Arun Jaitley,the then FM at the Central Govt, thought it fit to reintroduce LTCG Tax from Fy 18-19, with an exemption if STT had been paid on the transaction. Now many Economists have recommended for abolition of LTCG tax showing the distortion it brings in transactions involving Digital Gold, unlisted shares and the black money generation it encourages in all and sundry especially in Real estate transactions.

The arguments against LTCG Tax are strong and valid. The vagueness it brings in matters of valuation brings lot of confusion and uncertainty giving the incentive to hide part of the consideration received. What demo wanted to flush out, LTCG Tax has encouraged inadvertently. It has sent wrong signals across the economy.

What is the remedy then. One simple alternative is to bring Transaction Tax similar to STT as Gold Transaction Tax and Real Estate Transaction Tax.

Recently Mohandas Pai, on LTCG Tax wrote a column in FE correctly stating that LTCG Tax is anathema to simpler taxation philosophy since it creates a mindset of evasion among tax payers.He has called for abolition of LTCG tax forthwith by rightly pointing out few perverse taxing rates especially with ref. to LTCG tax rates on the sale of unlisted shares.

Once LTCG Tax is abolished  Central Govt may want another avenue for Tax revenue and for that I would recommend Gold Transaction Tax and Real Estate Transaction Tax on the same lines that of STT. These Taxes will be much simpler to comprehend and easier to comply with. Even administering it by IT dept will be easier.

Now there is a clamor for a Windfall tax from the stock exchange transactions, as people who dabble in Stock exchanges are generally from well off sections of the society. When the whole nation is battling pandemic induced economic woes, it is quite natural to expect the group of well-heeled rich to contribute something extra by way of tax to the country's cause in fighting this economic downturn. But this windfall tax must be a one-time tax or it can be a temporary increase in STT for 2/3 years.

My preference would be for a temporary increase in STT for 2/3 years.

Government's asset monetisation

Policy prescriptions are flying thick and fast and on my part, I am adding one more .

All Economists including me are prescribing deficit monetisation, pump priming etc. taking a leaf out of Modern Monetary Theory.

As against this,Central Govt. has an alternative which is called Asset monetisation, according to me.Govt calls it Disinvestment/Divestment of PSUs. When the whole world is reeling under Covid pandemic , will there be a suitor for Air India?

Even if there is a good buyer will he be willing to pay the right price for Air India.What will be the benchmark for its valuation when the whole industry is bogged down by this pandemic and its repercussions on the travel industry.

In such unprecedented situations , it is best advised not to go in for outright sale transactions of Government stake in PSUs including Air India, BPCL,etc.

Similarly, other intangible but real assets are Spectrum waves (link), Mining/Abiotic  ,Biotic Resources which are hidden inside the Earth, Ocean ,Space etc., Potential Renewable energy sources, which have future economic value and can add to GDP when suitably exploited without degrading the environment.

If these resources are valued properly, and India identifies these assets in terms of monetising its strengths, then India will have to look for its Enterprise value and raise suitable resources upfront for its current requirements in investing in its infra development.

In fact even lands owned by Indian Airports Authority can be used better by allowing usage of its land underground for commercial purposes.Even some of the defence lands can be wisely used under the ground for commecial purposes without in any way jeopardising defence security.