Rethinking tax treatment of capital gains from securities

Economic and Political Weekly

Volumn 42, Issue 4, 2007, Pages 287-290

  Bagchi, Amaresh ^a  

^a NONE

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EID: 84873573352     PISSN: 00129976     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (22)

1. Times of India, January 13, 2007.
2. Reserve Bank of India Annual Report 2005-06, Appendix Tables 45 and 46
3. Allowing for new issues during the two years of about Rs 30,000 crore each year (vide Table 2.1, SEBI Annual Report, Part Two, p 32).
4. Transfers by gifts or inheritance require some fees/stamp duty for obtaining succession certificates or probate of will. Revenue from these fees/duties however is not very significant.
5. SEBI's website and annual reports.
6. Net investment by FIIs during the three years 2002-03, 2004-05 and 2005-06 was of the order of Rs 45,000 crore. Of this, roughly onethird was from Mauritius, vide Table 1.76 of SEBI's FII Trends www.sebi.gov.in/FII Trends.
7. 'Evaluation of Social Income, Capital Formation and Wealth' by Paul Samuelson, in Lutz and Hague (eds), Theory of Capital, 1961.
8. Capital gains were brought under taxation in India for the first time in 1948-49 but was discontinued soon after and was reintroduced only in 1956-57.
9. Economics of the Public Sector by Joseph Stiglitz, Norton, 1999, p 595.
10. 'Economic Analysis of Capital Gain Taxation: Realisations, Revenue, Equity and Efficiency' by George Zodrow, Tax Law Review, 1993.
11. 'Capital Gains Taxation and Tax Reform' by Alan Auerbach, National Tax Journal, September 1989, Vol 42, No 3.
12. 'Capital Gains Realisation and Tax Rates: New Evidence from Time Series' by Mathew Eichner and Todd Sinai, National Tax Journal, September 2000, Vol 53, No 3.
13. The US Income Tax by Michael Graetz, Norton 1999.
14. Here are the relevant figures: Source of basic data: RBI Annual Report 2005-06, Appendix Table 46.
15. For a delightful account of the controversy over the tax treatment of capital gains in the US, see Graetz, op cit.
16. 'The Tax Reform Panel's Report: Mission Accomplished' by Alan Auerbach, Economists' Voice (www.bepress.com/ev), December 2005.
17. 'Tax Reform for Grown-ups' by Joel Slemnod, Milken Institute Review, 8(1) First Qr 2006, pp 16-27.
18. The recent decision of the Advance Ruling Authority in AAR Nos 678-688, and associated cases holding that gains from transactions of FIIs in securities in India should be treated as capital gain and not business income clears the way to levy LTCG tax on FIIs. However, it has evoked some adverse reaction from foreign investors (Economic Times, January 17, 2007). The impact of this ruling is yet to be known. Going by the FIIs' net investment in the last few years however, it would appear that the FII flow is not all that responsive to CG taxation. Giving total exemption for LTCG, does not speak too well of a tax system. Excessively soft tax regime for sectors like IT, is a source of embarrassment to business leaders like Narayan Murthy (Economic Times, January 18, 2007).
19. Auerbach op cit.
20. Sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G, and 54H of Income Tax Act 1961. Costs and benefits of these provisions are unknown. The tax expenditure analysis presented with the budget each year provides no idea of the
21. revenue cost of concessions in capital gain tax.
22. Vide Taxman's Income Tax Act.