More tax cuts on cards to boost investor morale, attract foreign investment

The government is reportedly planning several tax alignments for equities in order to attract foreign exchange and boost investor sentiment. The move comes a month after Finance Minister Nirmala Sitharaman announced relaxation in corporate tax structure, infusing confidence in the Indian corporate sector and equity markets.

The Prime Minister's Office, in consultation with the Finance Ministry's Revenue Department and NITI Aayog, is reviewing the existing structure of Long Term Capital Gains (LTCG) tax, the Securities Transaction Tax (STT) and Dividend Distribution Tax (DTT), sources told CNBC Awaaz. A group of officials is readying the groundwork for these reforms which is likely to be finalised by November-end, they added.

Different tax structures for equities market may be rationalised to almost a single tax structure, the report said.

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The report further added that DDT might be the first to see substantial rationalisation. A task force on reforming direct taxes has recommended abolition of DDT in the past. Also, a section of decision makers is of the opinion that DDT hinders investment of long term overseas pension money in Indian equities.

LTCG might be another point that the government is likely to ponder on in the latest round of tax cuts. Long-term investors have been dissatisfied with both LTCG and DDT for a long time.

The Finance Ministry wants to announce these tax cuts in the upcoming Budget, but the PMO may push for early announcement, the report said.

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Last month, FM Sitharaman had announced a corporate tax cut for new manufacturing units and companies in India in order to boost economic growth. The decision led to Indian corporate tax structure being the lowest in south-east Asia.

The government has taken several other steps to remedy the slump in Indian economy. These include consolidation of 12 public sector banks into four large lenders at par with global peers and strong financials. In the past three months, the government has announced reforms in tax structure, steps to help the auto industry, directions to government departments to spend their budgeted allocations and quicker payments to outstanding government bills.

The government is also keen on expediting disinvestment process in certain CPSEs, bringing down its stake in them below 51 per cent. The proceeds from these stake sales will help finance government's plans for reviving the economy.

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