Investing Strategy, Budget 2018, ,Trade Nivesh
February months ago
Whether Finance Minister Arun Jaitley will introduce a long-term capital gains tax on equity or not has grabbed a disproportionate amount of the market’s attention. Here’s the logic in favour of the move:
Let us first take a look at how much government garners from Securities Transactions Tax (STT) that is levied on every equity transaction. For FY18, it is budgeted to be Rs 7,767.9 crore, or 0.4% of gross tax revenue for the year. Going by the total turnover data of BSE and NSE (Rs 10,04,31,415 crore) it works out to 0.01%.
So should STT get abolished and get replaced by Long Term Capital Gains, on a conservative basis, the earnings can actually double.
The total cash market turnover in FY17 was Rs 60,54,174 crore in FY17. As per our calculation, 50% of this was buy transactions which is approximately Rs 30,77,087 crore. If 25% of this transaction is meant for holding for the long-term (beyond one year), the value of such long-term transactions is Rs 7,69,272 crore.
Taking a historic average gains percentage of 15%, the average long-term gains works out to Rs 1,15,390 crore. The intended 15% long-term capital gains tax works out to close to Rs 17,308 crore, which is much more than the revenue sacrificed by abolishing STT. So it does make immense economic sense.