Narendra Modi, India’s prime minister, gestures whilst speaking during a lecture (Photographer: Nicky Loh/Bloomber)

Modi Hints At Possible Increase In Long-Term Capital Gains Tax

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Prime Minister Narendra Modi has termed the tax collection from securities market participants as “low”, and attributed it to loose tax laws and possible fraud. Speaking at the inauguration of the National Institute of Securities Markets campus outside Mumbai, the prime minister said people profiting from the stock market must contribute to nation-building through taxes.

He also hinted at tweaking laws concerning gains from the capital market, possibly alluding to an increase in the long-term capital gains tax on securities transactions.

Those who profit from financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud. To stop this, SEBI has to be extremely vigilant. To some extent, the low contribution of taxes may also be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income. We should consider methods for increasing it in a fair, efficient and transparent way.
Narendra Modi, Prime Minister

The Prime Minister’s comments on securities taxation come just a month ahead of the 2017-18 Union Budget, which will be presented by Finance Minister Arun Jaitley in early February.

Link Spot And Derivatives Market In Commodities

The commodity derivatives markets would be merely a “costly ornament”, he said, if access to them did not reach broader society, the farmer in particular. Taking his point on wide inclusion further, Modi added that the stock market too should help raise capital for productive purposes like agriculture while the bond market could become a source of long-term infrastructure financing.

Our stock markets need to raise capital in innovative ways for projects in agriculture. Our commodity markets must become useful to our farmers, not just avenues for speculation. People say that derivatives can be used by farmers for reducing their risks. But in practice, hardly any farmer in India uses derivatives. That is the fact. Unless and until we make the commodity markets directly useful to farmers, they are just a costly ornament in our economy, not a useful tool. 
Narendra Modi, Prime Minister

In this context, the prime minister urged the market regulator, Securities and Exchange Board of India, to work towards creating a closer link between spot markets like e-NAM and derivatives markets, in order to benefit farmers. Earlier this year, the government had introduced e-NAM – a pan-India electronic trading portal networked with the agricultural market committees – to rejuvenate the sector.

Tapping Bond Markets

Modi pitched for bond markets to become the financier of long-term infrastructure projects – an area that has so far been financed by the government, external lenders like the World Bank, and banks. Developing a robust corporate bond market would ensure that banks funds can be utilised for other less organised sectors, he said.

The prime minister asked market regulator and the finance ministry to enable municipalities to tap markets. The remark on deepening the municipal bond markets should be seen in the backdrop of government’s Smart Cities programme, which requires large revenue sources, one of which is tapping the municipal bond market.

This government has launched an ambitious Smart Cities programme. In this context, I am disappointed that even now, we do not have a municipal bond market. There will be problems and difficulties in creating such a market. But the true test of an expert innovation is when it solves a complex problem. Can SEBI and the Department of Economic Affairs ensure that at least 10 cities in India issue municipal bonds within one year?
Narendra Modi, Prime Minister

PM’s Pitch For Demonetisation

Defending his demonetisation move, Modi said the note ban initiative will lead to short-term pain but it will be fruitful in the long run. He added that the his government was ready to take tough decisions in the interest of the country, and not for short-term political gains.

This government will continue to follow sound and prudent economic policies, to ensure that India has a bright future in the long run. We will not take decisions for short term political point scoring. We will not shy away from taking difficult decisions, if those decisions are in the interest of the country. Demonetisation is an example. It has short term pain but will bring long term gain. 
Narendra Modi, Prime Minister

Even as hurdles remain in the implementation of the Goods and Services Tax, especially on issues of dual control, compensation and interstate trade, Modi expressed hope that the biggest tax reform the nation has seen till date will become a reality shortly.

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