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‘Won’t allow stock mkt to be misused for tax evasion’
Stock markets cannot be allowed to be misused by manipulators for evasion of taxes and the BSE has put in place a strong surveillance mechanism to check any such misdeeds, the exchange’s CEO Ashish Chauhan has said.
He also urged the government to have a fresh relook at the laws for further tightening of rules and removing the loopholes in the capital gains tax exemption framework to completely stop any tax evasion through stock market trading.
In an interview to the news agency, Chauhan also said there is a widely held percption that only penny stocks are manipulated for tax evasion, but there was a need to study whether larger stocks are also used for such misdeeds as 80-90 per cent of capital gains tax exemption being claimed were from the larger companies.
In the annual budget this year, the Government announced a major step to check tax evasion through penny stocks by limiting the long-term capital gains tax exemption only in stocks in which purchase securities transaction tax (STT) was levied.
In case of shares purchased off-market or without levy of STT, the incentive would now be limited to only some genuine transactions such as IPOs and a few other cases.
Chauhan said it was a move in the right direction as such exemption Chauhan said the Government has acted by stoppingallowing the preferential shares for the benefit of this exemption.
“The largest amount of tax evasion was happening through that route and that has been blocked very well. We still believe that till the time you give that incentive, people would still attempt,” he said.
Stating that the onus is on exchanges to not allow price to be manipulated, the BSE chief said it is also for the government to ensure that there are no such loopholes for the people to take advantage because exchanges are not equipped to handle tax evasion and they do not have that mandate.
“Still, we have created an interesting mechanism to not allow the price of a stock to go beyond a particular limit. Tax evasion can happen only if the prices go very high or very low,” he said.
Chauhan said the BSE has put in place periodic price bands since September 2015, under which it has imposed weekly, monthly, quarterly and annual price bands to ensure that the stock prices do not go beyond a particular limit.
“For example, if a `10 stock goes above `40-50, the software doesn’t allow it to move upward further. This will ensure that `10 stock doesn’t go to `1,000 and come back. That has stopped a lot of such actions,” he said, adding there is a perception that has got created that tax evasion happens only in the small stocks.
“It is easy to blame them, but larger stocks may also be used. Somehow, we seem to think that small companies are getting manipulated and large companies not have such issues. But if you study the amounts, you might find that 80-90 per cent of capital gains tax exemption, which is being claimed, is actually from larger companies,” Chauhan said.
“It’s just that we have got a convenient explanation and that all of us agree on without any analysis and we have taken action. That is not bad, as some action has been taken at least, but that doesn’t mean that we need to keep this loophole, “ he added. would not be available any more for preference shares that were mainly used for evasion of taxes, but some more steps are required to fully check the loopholes.
There have been several cases that have come to light in recent years where penny stocks were used for tax evasion through manipulation in shares of thinly traded companies.
The BSE has been as such proactive over the years for delisting of stocks were no trades have taken place for a long time, after giving due time to those companies for compliance.
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