| Masked menace
Calcutta, May 4: The last quarter of a financial year witnesses brisk trading in the shares of some companies that are listed entities on bourses but apparitions outside. And what’s more remarkable than the volume of deals, are the gyrations in their share prices.
At first sight, most of them would pass of as finance, investment or technology companies. But as the management of these companies would secretly admit, these are dummy firms used to reduce tax liabilities and, at the same time, clean hoards of ‘black money’.
A clique of stockbrokers holds the shares of these companies, and work as intermediaries between people who need to reduce tax liabilities and others who need to turn unaccounted cash — or ‘black money’ — into legitimate profits.
This is how ‘jama-kharchi’ — as the practice is known in market parlance — works. Brokers operating in these stocks manipulate the price of these stocks so that they move sharply.
People who need to book capital loss — or those who need to reduce tax liabilities — would buy such stocks when the price is high and sell when it declines. Those who need to clean ‘black money’ would do the opposite and profit from the deals.
However, the brokers would return the profits that arise out of these deals to the losers in cash, after deducting a commission for their service.
The losers in these deals would set off their capital gains against the loss, while the ones who gain, would use the profits to bring into their books formerly unreported cash.
The brokers typically charge around 4 per cent of the total amount from both parties, and pay about half of their commission to the promoters of the companies that decide to be a party to the web of manipulated deals.
While everyone, including stock exchanges, gains from this practice, it costs the central exchequer hundreds of crores in revenues every year. So why doesn’t it stop' Haven’t the tax authorities woken up to it'
The onus to stop them lies largely with stock exchange authorities and Sebi, the securities market regulator. The tax authorities have asked bourses to pin down the brokers and nullify such structured deals, but they continue unabated.
Though Calcutta Stock Exchange happens to be the mecca of jama-kharchi, many of these phantom firms are listed on National and Bombay stock exchanges as well.
“The listing fee paid by these companies is a major source of revenue. If we were to ‘delist’ these companies, our income from listing fees would fall sharply,” a Calcutta Stock Exchange official secretly admits.