BSE asks government to scrap tax arbitrage

NEW DELHI: The Bombay Stock Exchange ( BSE) has written to the government seeking removal of capital gains arbitrage between listed and unlisted companies to stem possible misuse of capital market transactions, especially in penny stocks.

The letter to the finance ministry comes after a regulatory crackdown and a tax probe in around 90 cases which was reported by TOI on Thursday .

Pointing to Sebi orders BSE's chief regulator officer Nehal Vohra has told the department of economic affairs that "the current differential capital gains treatment be tween listed and unlisted securities should be harmonized to prevent tax arbitrage". Tax experts said this can be done only through two means -by either exempting capital gains tax on all security transactions or by levying on listed as well as unlisted ones.

"The Parthasarathi Shome committee had recommended doing away with the capital gains tax exemption or having a uniform rate for all. That will require a more detailed study but it is a matter of fact that some of the companies are misusing the capital gains tax benefit to convert black money into white," said Dinesh Kanabar, CEO of Dhruva Advisors.

A top official at a leading tax consulting firm said BSE's suggestion was surprising."The arbitrage should be dealt with administratively or by preventing misuse rather than get the government to change policy for that."