Budget 2016: Channelize investor interest into tangible flows for the govt

By Vikaas M Sachdeva

There are a couple of things that I expect from the current budget.

A] Addition of notified securities under Sec 54EC to include Mutual Fund products:
In the late 90s and early 2000s, there were capital gains tax benefits available under Sec 54EA and 54EB which included investments in mutual funds. This led to a sizeable amount of long-term money coming into equity schemes which changed the trajectory of growth for the industry.

budget23Currently, the benefit available is under Sec 54EC in which an investor can invest his capital gain proceeds (not exceeding Rs 50 lakh) in NHAI and REC bonds. Adding mutual fund schemes to the notified list of securities under Sec 54EC will ensure a sizeable flow of long-term assets into the capital markets via the MF route.

B] Treating Fixed Income ETFs as listed debt for purposes of taxation:
Currently, the mutual fund schemes attract short-term capital gains tax (taxed at marginal rates) if the investment is for a period of less than three years. However, listed debt paper enjoys taxation at a flat rate of 10 percent if held for a period of more than one year.

ETFs, being listed debt in the purest sense of the term, currently are taxed as mutual funds rather than listed debt. If the current budget recognizes and rectifies this anomaly, it would give a huge fillip to the ETF industry, particularly the fixed income ETF.

C] Clarity on who pays the service tax on MF distribution:
As in any other product, it has to be paid by the client. If the client wishes to NOT pay service tax on brokerage, he always has the direct plan. Clarity in this aspect will allow the industry to stay focused on its core job of increasing financial inclusion across the country.

Oil & Gas sector
The budget has always been looked by market players for directions and thinking of the policy makers. Oil and gas sector has been contributing 15 percent to GDP. It has been one the prime sector for investments and where long-term impacts are visible with policy directions. However, with crude at a multi-year low, the sector needs to have special look in the budget which could boost the sector.

A few expectations from the budget in the oil and gas sector are:

• Switching from fixed cess of Rs 4,500 per tonne of output to ad-valorem basis - which would be a percentage of the sales price -could benefit the up-stream companies

• Road map on LPG and kerosene subsidy rationalisation and timelines for direct benefit transfer. Meanwhile, equitable subsidy sharing arrangements given to low crude oil prices for cooking gas and kerosene can help upstream companies in the short run

• Eligibility period and flexibility for claim of tax holiday on oil and gas sector should be extended and aligned with the infrastructure sector, which provides for a tax holiday period of 10 consecutive years.

• Service tax exemption on laying of gas pipeline network to align it with the status of other infrastructure development projects. Companies cannot take CENVAT credit of service tax incurred for exploration and production.

• Investment linked incentives for intra city gas distribution pipelines

• Declared goods status for Natural Gas which will bring down the applicable VAT rates on these products in line with other energy products.

(The author is the Chief Executive Officer of Edelweiss Asset Management Limited. Views expressed are personal)

Updated Date: Feb 25, 2016 16:10 PM

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