Fear of increased taxes made markets crash

 Fear of increased taxes made markets crash

MAMTA SEN  MUMBAI | 2nd Mar 2013

ixed reactions are pouring in from the business fraternity over the Budget and more importantly the one and a half hour stock market crash that followed. Rakesh Samatha, an investor from Dalal Streetsays, "The market started functioning irrationally after the Foreign Investment Institutions (FII) saw that instead of making more profits they're forced to pay more taxes. This shows that in spite of the BSE having many ndian investors, the market clearly depends on foreign investors. It's high time that Chidambaram identifies small investors to avoid such situations," he says. Debashish Basu, editor of Moneycontrol.in, says, "One of the reasons the markets reacted was because there is a lot of disbelief about the way the FM has projected the figures and growth. Then there was confusion about the Mauritius tax angles, which was not that important, but enough to create chaos for one-and-half hour in the market," he also added that this shows that the upward movement of the market has been broken. On a different note, Robin Banerjee, deputy managing director, Bilcare, said that the budget was a good one, keeping in mind the coalition politics involved. He believed the market crash was only a short time phenomenon and will not have future impact. "India has preferential treatise with various countries, like Mauritius. When investors from this country buy shares in the stock market, there is a preferential tax treatment. In fact, it pertains to Capital Gains tax, which is eligible on shares sold, when the original investment arises from Mauritius. However, in the Budget proposal, it was proposed that the government will not only obtain certifications from the country of origin but would also require 'some other proof' to satisfy the genuineness of the origin of the money. This is known as the 'residency test' and is where the problem lies," he analysed, adding that investors thought that through the new proposal of verification of tax residency, additional taxes could be levied when shares will be bought and sold in future, as the government may disallow the Mauritian status of certain investments. He added that, when the government clarified this issue, the markets bounced back. Credit policy analyst Makarand Wadekar also says that the stock markets mainly run on foreign investors, who for now believe that it is not a favourable time to invest in India and do not have faith in the government's long term policies.

http://www.sunday-guardian.com/business/fear-of-increased-taxes-made-markets-crash