Budget 2019 expectations: Corporates demand rationalisation of taxes in banking sector from Modi government

In a bid to attract push companies to favour debt capital over equity capital, corporates are demanding rationalisation of the banking taxes, especially Long-Term Capital Gain (LTCG), Security Transaction Tax (STT) and Dividend Distribution Tax (DDT) from the central government when the Finance Minister Arun Jaitley stands in parliament on February 1 to present the 2019 budget.

Arun Singh, Lead Economist at Dun and Bradstreet told Zee Business online, "The Long-Term Capital Gain (LTCG), Security Transaction Tax (STT) Dividend Distribution Tax (DDT) result in triple taxation of corporate earnings that are distributed. This has led companies to favour debt capital over equity capital. Given the high NPA levels, the Union Budget 2019-20 is likely to announce measures towards the rationalisation of these taxes so that corporates can move towards equity capital." Singh of Dun and Bradstreet went on to add that Prompt Corrective Action (PCA) framework has set certain thresholds in terms of capital, asset quality and profitability for weaker banks, these banks might require further capital infusion in order to help them meet their regulatory capital norms. Hence, in the Union Budget, the government is expected to propose further bank recapitalization plan.

Pressing high for a budget that supports economic growth through strategic investments in infrastructure Kaushik Banerjee, CEO — Asset Finance — at Magma Fincorp told Zee Business online, "The government of India needs to work with RBI to reduce the effective real rate of interest which today is the highest in the world."

Corporates are the main source of work for the SMEs and MSMEs as they work as vendors to the giant players. So, any rationalisation in above mentioned taxes in the banking sector would boost the industrial sector to a larger extent. The move may further trickle towards the job market data as well as SMEs and MSMEs are the major job makers in the industrial sector.