FM puts up stout defence of budget
New Delhi: Finance minister Arun Jaitley on Thursday came out in strong defence of the move to re-introduce the long-term capital gains tax on securities held for over 12 months at the rate of 10 per cent, arguing that it would put an end to the practice of forking out massive tax exemptions to corporate houses, foreign institutional investors and limited liability partnerships (LLPs).
Jaitley said the government had forked out income tax exemption worth Rs 3,67,000 crore because of the tax break on long-term capital gains, most of which was cornered by these players in the capital market.
Former finance minister P. Chidambaram had scrapped the long-term capital gains tax on capital market transactions in the UPA's first budget in July 2004 - and compensated for the loss of revenue by introducing the securities transaction tax.
Jaitley said there was no need to provide the tax break anymore - which he said had been conceived at a time India needed to ensure foreign funds flow into the economy. That situation doesn't prevail anymore, he said.
The Reserve Bank of India's data show that the country's foreign exchange reserves have swelled to over $417.78 billion as on January 26 this year.
The finance minister said these market players used to churn their portfolios and take money out of the country without paying taxes because of the tax avoidance treaties with countries such as Mauritius, Singapore and Cyprus. The government at that time turned a blind eye to these gyrations of cash.
The Modi government, he said, had plugged these loopholes in the tax treaties with these nations and the next step was to end the long-term capital gains tax break. The 10 per cent LTCG will be payable from April 1 and will apply to shareholders who flip their securities after holding them for more than 12 months.
The minister said the domestic stock markets had swooned soon after the budget but said this was in response to the global rout in stocks from Japan to the US and had not been triggered by the re-imposition of the LTCG tax.
The Sensex, the bellwether index of the BSE, had fallen more than 1800 points since budget day on February 1, before rising 330 points on Thursday.
Jaitley, who was replying to the debate on the budget, claimed the economic narrative his government had created had placed India on the map of fast growing nations. "The narrative which we had inherited and which we have created are entirely different."
He pointed out that despite the global headwinds, India had posted strong GDP growth and the IMF expected it to emerge as the fastest growing major economy next year again. He said despite demonetisation and the introduction of the GST, India was expected to grow 6.7 per cent in 2017-18, 0.4 per cent lower than the previous financial year.
In the debate on the budget in Rajya Sabha, Chidambaram termed the health insurance scheme for 10 crore poor families as a jumla (empty promise).
Chidambaram said in 2016-17, Jaitley had similarly announced a health cover of Rs 1 lakh for economically weak families. "The scheme was not approved by the cabinet and it was quietly buried. Two years later, the same minister came up with a new scheme with a Rs 5 lakh cover for 10 crore families...where will the money come from to fund this?"
The Congress leader pointed out that if a premia of 3 per cent of the sum insured was taken into account, the cost of the scheme would be "Rs 1.5 lakh crore ... Even if the premia were taken at 2 per cent it would cost Rs 1 lakh crore."
Earlier, he attacked statistics provided by the government to back its claim that employment had gone up in the last two years. He said an economy that had slowed down sharply could not have created jobs and that this assertion was just another jumla.
"The ILO (International Labour Organisation) describes a proper job as employment that is certain, regular and reasonably secure. How many ILO-described jobs were created in the four years of your government," Chidambaram asked.