Samir Arora’s ‘zero LTCG tax’ proposal sparks war of words with Rajeev Mantri; latter calls it ‘laughable idea’

Helios Capital founder Samir Arora’s proposal to scrap long-term capital gains (LTCG) tax in India has sparked a war on words with Rajeev Mantri, managing director of venture investment firm Navam Capital, who strongly opposed it, calling it a ‘laughable idea’.

Earlier today, Arora began the discussion on microblogging platform ‘X’ saying that even though gross foreign direct investment (FDI) is $71 billion, the net FDI is only 10.6 billion and ‘’this is bad for medium-term growth prospects”.

‘’My guess is that large repatriations are due to selling by PE funds and this problem will become worse if India prefers PE over FII funds. If PE funds invest $50 billion now, they will expect to take out $100 billion in approximately seven years and so on till it becomes unsustainable,” said Arora.

Also Read: ‘Best thing to create wealth for public’: Helios Capital’s Samir Arora bats for zero LTCG tax; here’s why

Better to attract real FDI money (which only takes out dividends of two per cent per annum and reinvests the balance) or FII (which broadly remains invested over time and even redemptions are not bunched too much on general), suggested Arora.

He added that attracting FII money requires the least amount of effort or policy changes, as it just requires the relaxation of capital gains tax. That will also help domestic investors, attract risk-taking money, allow the government to raise good money from PSU divestments, and collect money from higher STT collections.

To this proposal, Mantri responded, ‘’This is a narrow and self-serving approach. Everybody wants a tax holiday for themselves, but of course somebody has to make good the overall revenues of the government. Who will bear the burden?”

Mantri also asking ‘’why secondary market traders or investors should receive a capital gains tax holiday”. ‘’What share of investment by FIIs actually goes into the hands of a company? And they should effectively receive a freebie by way of a tax holiday? No,” said Mantri in his post on ‘X’.

LTCG tax is levied on the profits earned from the sale or transfer of certain long term assets, such as stocks, real estate, mutual funds, or other investment tools. The tax is applicable only when the assets are held for a specific period, typically more than one year, before they are sold.

Arora further responded to Mantri, ‘’You may not know – in fact, you do not know – that no country, as in zero countries in the world – charge capital gains taxes to foreign investors. This includes countries like US, UK, Japan etc so India cannot be unique. Plus STT was introduced to replace LTCG.”

In India, there is no need to differentiate between foreign and local investors so the best thing is to scrap capital gains taxes for all and take advantage of the market sentiment to sell PSUs at even better prices, create wealth for Indian public and attract FII money, according to the Helios Capital founder.

Arora also added, ‘’If you have any further questions, please let me know.” To this, Rajeev Mantri again hit back and repeated some of Arora’s words in his response, mocking the former’s claims.

‘’You may not know – in fact it appears you do not know – that those countries also have an open capital account. There are of course many other differences. They have their own system. India doesn’t need to ape their system piecemeal,” said Mantri.

According to him, scrapping all capital gains taxes is a ‘’laughable idea,” and finance or investment professionals who make such proposals only discredit themselves and their industry. Sensible arguments such as scrapping of STT and rationalization of capital gains taxes will then fall on deaf ears, as policymakers rightly toss such quixotic and self-serving proposals into the waste bin.

‘’We are anyway debating doing away zero taxes for agriculture income, we don’t want to create another constituency that leeches off the rest of the country with zero taxes. Spurious and specious logic of “attracting FII money to sell PSUs” etc is as laughable as zero capital gains tax,” said Mantri.

Like Arora’s whip, Mantri also concluded, ‘’But you may not know. Anyway, any further questions, please let me know.”

Also Read: ‘Billions of dollars’: What Helios Capital’s Samir Arora estimates after FIIs reduce shareholding in HDFC Bank

For the calculation of the LTCG tax, the tax is charged on the profit gained from the sale of an asset held for longer than 24 months. LTCG on shares and equity-oriented mutual funds in India are taxed at a 10 per cent rate (plus surcharge and cess) if they reach ₹1 lakh in a fiscal year.

LTCG is defined as profits on the sale of shares or equity-oriented mutual funds held for more than a year. Capital gains is primarily categorised into two types –Short-term capital gains tax and LTCG. Transactions involving any such capital asset are taxable under the Income Tax Act of India, as well as cess and any other surcharge that may be applicable on the sale.