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Defused: Sitaram stockpile

New Delhi, May 20: Scrambling to stem the bloodbath on the stock markets, the Centre today rejected the CPM’s demands to bring back a tax on share transactions and review the double taxation avoidance treaty with Mauritius.

Less than 24 hours after CPM leader Sitaram Yechury voiced the two demands, finance minister P. Chidambaram told a media conference that there are no plans to reintroduce the long-term capital gains tax on stock transactions or to review the treaty with the tax haven of Mauritius.

“There is no intention to reintroduce long-term capital gains tax on securities traded on the stock market. The issue of double taxation avoidance treaty' cannot be reviewed unilaterally,” Chidambaram said.

The media conference was hastily convened, probably to allay fears among market players ahead of Monday’s trading session.

The week that ended had been the worst in the history of the Bombay Stock Exchange, the crash triggered by a combination of factors.

Yechury’s comments had come towards the end of yesterday’s trading session, and the public response by Chidambaram reflects the government’s eagerness to nip in the bud another potential market flashpoint.

The CPM expressed its displeasure at the finance minister’s reaction. “They have no substantial arguments to counter the points we have made on the need for bringing back long-term capital gains. Many developed countries have this tax,” CPM leader Nilotpal Basu said this evening. “We can’t have the FIIs (foreign institutional investors) dictating taxation policies to us.”

Chidambaram, however, did try to explain some of his statements.

“As far as the India-Mauritius treaty is concerned, the subject has been debated threadbare. Having regard to larger economic, political and diplomatic considerations, we are not proposing any unilateral revision.” Several FIIs have registered themselves on the island as its agreement with India exempts them from higher taxes here.

The meltdown was accentuated by fears that the government is planning to pick out stock traders and tax them. The finance minister iterated that a circular asking for comments on the issue was not aimed at FIIs.

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