India lost ₹15 trillion trying to make ₹14 billion from tax surcharge on investors
- The market value of Indian shares fell sharply since the latest Union Budget, which proposed additional tax on super rich investors.
- The total loss of market value of shares from July 5 until August 23 is pegged at ₹ 14.7 trillion whereas the expected tax revenue from the additional surcharge was a mere ₹14 billion.
- Finance Minister Nirmala Sitharaman rolled back the surcharge on Friday to stem the market meltdown and revive investments.
The damage was borne by investors as stocks in both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)-- including the Sensex and the Nifty-- went tumbling over the next 49 days. And the rupee became the worst performing currency in Asia in August.
The latest budget for the financial year ending March 2020 imposed an additional tax on the profit made from shares by the country's super rich and foreign portfolio investors (FPI) got caught in the crossfire. The subsequent anger and market sell-off has wiped off billions of rupees in share market wealth since then as foreign investors rushed for the exit.
Foreign investors folded many of their investments and pulled money out in hordes-- nearly ₹22.5 billion since the budget day.
The value of shares in the India fell by a whopping ₹14.7 trillion from July 5 to August 23. However, on Friday (August 23), when Sitharaman decided to rollback the levy on investors, the Revenue Secretary, Ajay Bhushan Pandey, revealed that the withdrawal will cost the government just ₹14 billion.
"Tax rates for FPIs will come down by up to 7%, back to the pre-budget levels, and this removes the anomaly created by the Budget 2019,” Rajesh Gandhi, a partner at Deloitte India, told the Economic Times. But the damage had already been done.
A weaker rupee would mean India will have to pay more for crude oil and that in turn will increases prices of other essential items. And India imports over 80% of all the crude oil it needs.
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