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Tejas Khoday

Tejas Khoday, Co-Founder & CEO, FYERS (A new-age stockbroker which offers a unique thematic investing platform).

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What the Budget would Look Like If I were the Finance Minister?

Corporate taxes would be reduced from 30% to 20% within 2 years (5% per year). This will help Indian companies to become internationally competitive. Currently, India has among the highest tax structures in Asia; higher than China, Indonesia, South Korea, Taiwan, Vietnam & Singapore.

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If I were the Finance Minister, I would focus on implementing steep tax reforms & policies which can transform the balance sheet & the economy. Some of the things which would be on the priority list are below:

1. Income Tax for Individuals - Since only 1.6% of the entire population pays Income tax, the aim would be to increase the tax collection base. The only way to accomplish this is to implement aggressive tax cuts to a point where the total tax outflow for the highest income bracket is not more than 15%. Indian direct tax collection system has been a failure so far primarily because of the high tax rates. The existing slabs could be maintained but the applicable tax rates could be cut by 50% for each slab. The exemption scheme under section 80C would be extended to direct investment equity shares too instead of limiting them to ELSS funds. Also, both long-term & short-term capital losses would be allowed to be offset against other incomes. Taxes on bonus shares if sold within a year would be abolished too. The idea is to help individuals to save and use that money to invest or for consumption rather than paying it to the government. High taxes demotivate citizens to a very large extent.

2. Corporate Taxes - Corporate taxes would be reduced from 30% to 20% within 2 years (5% per year). This will help Indian companies to become internationally competitive. Currently, India has among the highest tax structures in Asia; higher than China, Indonesia, South Korea, Taiwan, Vietnam & Singapore. It will also encourage FDI investments in our country.

3. Dividend Distribution Tax - Would be abolished because is it is equivalent to "Double/Triple Taxation". Currently, companies don't want to declare dividends because it is tax inefficient and instead choose to declare bonus shares (which are also taxed if the investor sells within a year). First of all, corporates have to pay an Income tax, then they have to pay a very high Dividend of 15% + cess to distribute profits to shareholders and lastly if dividends exceed 10 lacs to 1 entity/individual, then an additional cess of 10% is payable by the shareholder. This structure creates a bad taste for everyone and thus would be scrapped completely.

4. Securities Transaction Tax - Indian stock markets have a higher cost structure in comparison to other countries. This applies to both equities & derivatives segments. Up to 50% of the transaction costs are due to various statutory levies mainly STT which is the biggest portion. I would reduce STT by 50-75% which would ultimately enable more liquidity, volumes and foreign market participation. Currently, SGX has higher volumes for Nifty futures than NSE. This shows that the trend will not reverse until STT is reduced or abolished.

5. Commodity Transaction Tax - I would abolish CTT for all exchange-traded agriculture processed commodities. Ever since CTT was introduced, the volumes have reduced substantially. To empower the farmers and agricultural business interests to hedge their prices through futures or options, transaction costs would be kept to the bare minimum. This is in the larger interests of society.

6. Capital Gains Tax - Would be left intact as the current structure encourages long-term investing & financialization  of savings in the equity markets.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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Budget 2018

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