What I Learned This Week Manish Bhandari | 10th March 2018

Interesting Maths behind the Ridiculously Expensive Art in the world
I had this interesting conversation with a friend of mine who brought this point to me; Not reforming primary education of India is going to be the single biggest failure this government
Life and times of Peter Thiel : What has influenced him a French Philosopher and Ayn Rand
Role of Luck  is underestimated in Success of life
Funds which actively invest in companies which supports gender diversity 
Notes from Louis on gift to the world from china : Inflation



What I Learned This Week Manish Bhandari | 03th March 2018

Learning from Failure : Lesson from Coke, Amazon and Netflix 
Explosion in Coaching of Data Science in India
An Overvalued market of Private Equity Players
Very Interesting : How Chinese premier is tightening his grip over party and country
Lesson from History : Untying the Guardian Knot of Temperament in Investing
The coming avalanche of buybacks in the US due to lower tax rate and repatriation of capital : Solution : Ban Buy Back

What I Learned This Week Manish Bhandari | 24th Feb 2018

What I Learned This Week
Manish Bhandari | 24th Feb 2018
Culture is a new money : What people wants from jobs 
Very interesting : Why Freud and Jung fell off after five years of friendship 
Investors are Gardners and not Carpenters 
Heart Wrenching story of A New York Cabbie
Urgency of Rescuing Indian Rivers 
In future we will print Genome not Edit 

What I Learned This Week Manish Bhandari | 17th Feb 2018

What I Learned This Week
Manish Bhandari | 17th Feb 2018
Making most of Second Chances in Investing 
Very Interesting : How productive you are in different parts of the day, month
Difference between Fame and Obscurity : Few seconds 
Rising speed of Technological adoption
Fragile State of a country ; Venenzuela 
The coming burst of US Dollar 

What I Learned This Week Manish Bhandari | 10th Feb 2018

What I Learned This Week
Manish Bhandari | 10th Feb 2018
Indian corporates should that they should scrap quarterly earnings call in interest of long term growth
The death of clothing and how people are moving to experience 
Another article on Artificial Intelligence in China and its impact
Eradicating Polio in India : Notes by Gates Foundation
Was Agriculture a mistake in Human History 
Defining competitive advantage and its true sources
The dark side of excellence in one area of life 

What I Learned This Week Manish Bhandari | 03rd Feb 2018

What I Learned This Week
Manish Bhandari | 03rd Feb 2018
One of the most Talked about Economic Event : Will NAFTA survive : Webinar 
Very Interesting : What Artificial Intelligence can do for you : Decode History for us from painting 
Imaginable concept : Rate your citizen on their Behavior 
Debate on Aging and notes from Cicero  
Article on India’s Healthcare crises : Especially for all those who thought about National Insurance Coverage in this Budget 
Peep into Amazing Secret life of Plants 
Canadian Capital fuel for Colombian Cannabis

Will He or Will He not ! The Story of India lies in the prism of Value Shift

On the eve of the budget, one of the most sought after questions in the minds of Investors is Will He or Will He Not?

“Yes”, you guessed it right we are talking about the Introduction of Long term Capital gain Tax on investments in equities and equity related Instruments(MFs), which have disappeared since the year 2004. In the last 13 years, a generation of investors have grown believing that tax free equity income is an entitlement which equity investors enjoy at the expense of other asset classes. Taking cues from the economic policies of this government for the last 4 years I have come to this conclusion that introduction of LTCG is inevitable in the Budget of 2018. The government has used all the measures (Demonetization, GST, Stringent Measure to curb Black Money, Dissuading Indians from investing in Real Estate) and this will probably be the next measure to be added to their list.

Look at India from the Prism of Value Shift rather than Value Creation; this will explain the conundrum of equity taxation far more clearly 

Broadly, India has been a story of Value shift rather than Value Creation. The value shifted from MTNL+BSNL to the private players, Air India to private airlines, domestic refining and exploration to private exploration, Public sector banks to Private sector banks and many more such cases. Sadly, in many other cases like manufacturing of cellular phones, solar panels and now batteries for Electric Vehicles, we are just importers rather than manufacturers; to describe this in one sentence- this is nothing but the shift of value to from our nation to the other nations. It has been a decade since an industry of repute has grown in India; Information Technology and Pharmaceuticals, both with the vintage of Year 2000 are now hitting maturity. The story of selling garments or attaining cost arbitrage by devaluing currency does not hold true for long in the economic history of a nation. The limited point in a rapidly changing highly competitive globalized world is that we are not able to make our mark. We have been consumers of technology not producers of technology and thereby what you see is jobless growth in India. With this backdrop,the redistribution of wealth from the rich to the poor, ‘have’ to ‘have not’ is the only option left with any form of political (right wing/left wing/socialist/communist etc) formation.

Why did we miss this in the first four years of this government? The corridors of New Delhi were busy fixing tax treaties with the tax havens of the world(1), walking their way through huge divestment programs(highest in the recent history despite the occasional murmur and musing of Prime Minister on taxing equity), meanwhile the gloated non tax paying equity investors have missed the transition of economic policies of the country from shades of Chidambaram to Modi. The introduction of surcharge on salary income of Rs 1 cr p.a and triple taxation on Dividend income above Rs 10 L should have given us enough cues that a political system cannot work this way by taxing interest on Fixed Deposit but by allowing gains on Equities and equity related instruments to go tax free. The economic policy to re-distribute wealth is coming (2). Welcome to the Value shift.

How we see this coming ; Cue from Germany

As quoted by our honorable prime minister Mr. Narendra Modi at the India France business summit in Jan 2016 “Retrospective tax is a matter of past. That chapter will not be opened again. We are ensuring that neither this government nor the future governments can open this chapter.” I strongly feel that he meant this for all kind of inward and outward investments. We should take a leaf from Germany where Long term capital gain tax on equity got introduced with effect from 1st Jan 2009, prospectively.  A brief dislocation was available on creation of short term taxation after the said date but big picture was not lost. I would be disappointed if policy makers do not tax short term trading, demonstrated by high portfolio turnover ratios of Mutual Funds, under the guise of their pass through status.

To conclude the discussion, long term capital gain tax on equity and equity instruments is inevitable and is begging implementation by other asset classes,  which are reeling under pressure under the purview of high taxes.

Manish Bhandari

Vallum Capital

31st Jan 2018

Earlier readings on this subject on Blogs/Linkedin Posts (Tax Balance Sheets of Indians, Gold Loan Schemes, Musing on Real Estate Sector)

(1) In the past 10 years(i.e 10 years before 2016) India saw $239 billion of FDI inflow. Out of this $81.8 billion or 34% have come from Mauritius

In the same period Singapore has accounted for $42 billion or 22% of FDI flows into India. So put together Singapore, Mauritius account for more than half of the FDI into India.

India had signed a DTAA(double taxation avoidance agreement) with 88 countries to avoid double taxation, but people set up shell companies in Singapore and Mauritius to take advantage of this situation because short term capital gain is exempt in countries like Singapore and Mauritius. So in 2016 the DTAA were amended which stated that any investment made on or after 1st April 2017 would be charged 7.5% short term capital gain tax, this would be upto 31st March 2019 and any investment made on or after 1st April 2019 would be charged the standard rate of 15% capital gain tax.

(2) Long term Capital gain in India up-to 2004-05 was 20% with indexation benefit and 10% without indexation benefit. Surcharge for Fiscal year 17-18 or Assessment year 18-19 is 10% of the income tax payable where total income exceeds 50 lac up-to Rs.1 cr and 15% of the income tax payable when total income exceeds Rs.1 cr.