Bring FIIs under capital gains tax net : BJP

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New Delhi, Feb 16: The BJP today demanded to bring all institutional investors, including FIIs, under the capital gains taxes net, a move which the party claimed would bring an additional Rs 15000 crore revenue to the exchequer.

Stating that the contradictory stands taken by the Authority on Advance Ruling (AAR) had cast doubts on the credibility of the quasi-judicial institution, BJP Economic Affairs Convenor Jagadish Shettigar demanded a thorough scrutiny into the working of the Authority. He said all the Foreign Institutional Investors (FII) were enjoying ten per cent exemption on capital gains taxes on all short-term transactions, unlike domestic institutional investors.

This exemption given on the basis of the AAR ruling in the Fidelity Advisory itself was questionable, he told to the sources. He said he had opposed this ''extraordinary favour'' by writing to Prime Minister Manmohan Singh as there was no logic in giving such a benefit to the FIIs.

Mr Shettigar said the FIIs were suspected to have facilitated re-entry of hawala or 'tainted money' into the mainstream economy, a stand vindicated by National Security Advisor M K Narayanan, who also apprehended the flow of terrorist funds in stock markets and real estate investments mainly under the cover of Participatory Note popularly known as 'PN route'.

The FIIs could invest the money accrued from the 'tainted sources' through this route without disclosing to the government the source of the funds. The government's attempt to rectify the situation by stopping the investments through the PN route met with a volatile fluctuation in the stock markets in May 2007 and Finance Minister P Chidambaram had to beat a hasty retreat amending his statements thrice in 24 hours, Mr Shettigar said.

The fund influx was so large that the stock market index had swollen by 17,000 points during the last four years of the UPA regime defying all logics and rationale, he said.

The BJP leader supported the Central Board of Direct Taxes' (CBDT) proposal to bring the domestic and foreign investors at par as the FII investments were in the range of Rs 50,000 to Rs 60,000 crore and the capital gains ranged from 1.5 lakh to 1.8 lakh crore.

If gains were taxed at 10 per cent like the domestic investors, the exchequer would be rich by at least 15,000 crore.

Mr Shettigar said the ruling of the AAR concerning Morgan Stanley allowing the income from derivatives was also questionable and it violates section 43(5) of the Income Tax Act which treated earning from speculative transactions under Securities Contracts Regulation Act be ''deemed capital gains''.

The Government has to clarify the position-- ''the logic behind the AAR's interpretation and for whose benefit,'' he added.


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