The Hindu Business Line : Turnover tax loaded against Indian investors

THE Finance Ministry is considering turnover tax in the ensuing budget as a substitute for Capital Gains tax. The suggestion has been made by certain Foreign Institutional Investors who feel that the paper work required in filing Income-Tax returns is mammoth and more investment is possible if the procedures are simplified.

The best solution is to simplify the paper work required for filing Income-Tax returns. However, we do not like easy solutions. We, therefore, feel that we should adopt turnover tax.

It is further debated that we cannot have different set of rules for Foreign and Indian investors. So, we should extend the turnover tax concept to Indian investors also.

It is important to note here Indian and Foreign investors have not been treated on par for the purpose of taxation in the past also. The implications of levying such turnover tax on at least Indian investors have several implications, which should be clearly understood.

Turnover tax in the form of SEBI registration fees is already being levied on the transactions and this could be an additional charge. This tax would then become a tool for each finance minister at the time of Budget. Just as tax on corporate dividends.

On a conceptual level capital gains tax is a tax on income. The basic canon of taxation is violated if we ask citizens to pay taxes just because they trade and there is no income accruing to them.

Investment in equity is a form of mobilising household savings into productive avenues, since the money is indirectly available to industry for growth and development.

On the one hand, we attract savings through tax-free bonds and I-T shields and on the other hand we tell the investors that they have to pay a tax just for entering the market. Such discrimination in saving options is against all principles of equity and justice.

A much wider debate is essential on this issue before any decision is taken. If the equilibrium of the whole market is at stake to resolve a problem that can be tackled by administrative reforms, it should be first tried. The May crisis has already put a doubt on the price integrity of the markets; it should not be tested again.

(The author is the Managing Director of investmentz.com)

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