The Hindu Business Line : Day-traders would be hit hard, say marketmen

Mumbai, Feb 29 The Finance Minister’s proposal to raise the tax on short-term capital gains (profits from sale of capital assets held for less than one year) on the transfer of listed equity shares from 10 per cent to 15 per cent didn’t go down well with the market, which fell sharply after Finance Minister made it public in the Parliament.

Reaction of a cross section of market players canvassed by Business Line indicated that the initiative is going to affect the day trader and short term investors. While mutual funds welcomed it, the brokerages felt it would impact sentiment negatively but nevertheless felt that it won’t hit the business that hard as opportunities for making money would not be missed.

“The rise in short term capital gains is a positive step taken to make the domestic investors elongate their investment horizons,” said Mr Sandesh Kirkire, CEO, Kotak Mahindra Asset Management Company Ltd.

“Provisions of STT (Securities Transactions Tax) being accounted, as part of the business expenditure is more worrisome for the market,” Mehta said as it will add to the tax burden. Earlier it was part of rebate provisions which got set off against your tax liability.

Explaining the significance of the change an analyst said, ‘Suppose a person falling under 30 per cent income tax rate slab has an income of Rs 100 and had a tax liability of Rs 30 the amount of Rs 5 paid by him as STT would be deducted and he need pay only a sum of Rs 25 as balance income tax.

But now as per the provisions proposed in the Budget, the Rs 5 paid as STT would be deducted from total income of Rs 100 and 30 per cent tax rate would be applicable on the net income Rs 95 which will be Rs 28.5 higher than Rs 25 paid earlier.

Mr Janak Mehta, President, LKP Shares said:, “Any raise in any tax is sentimentally not very welcome, volumes will suffer but market will overcome it. Five per cent is not going to be anything significant as such, if there are opportunities, people will encash them, only its going to be slightly more taxable”.

“The negative impact of increase in Short Term Capital Gains Tax will hit trading volumes in the short run but will get evened out over a period of time as markets moves from momentum and speculation to more fundamental and value investing. That journey has clearly started,” said Mr Subramanyam Pasupati, President, Ventura Securities.

Reacting to the proposal Mr Ajay Bagga, CEO, Lotus India Mutual Fund, said, “Its better, churning will be stopped which is what we in mutual fund industry look forward too as long term investors in the market, it will restrain the investors from short-term liquidation.”

“The increase in short term capital gains tax from 10 per cent to 15 per dent will also encourage the investors to have a longer range commitment and discourage unhealthy speculation,” said Mr. Arindam Ghosh, CEO, Mirae Asset Global Investment Management (India)

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