CPI(M) Politburo member Sitaram Yechury today rejected Finance Minister P Chidambaram's assertion that the crash was caused by domestic reasons (uninformed media reports about CBDT circular) and said that there was an international downslide in the stock market.
He said that the Left parties has been warning the government about the "vulnerability" of the stock market to foreign institutional investors (FIIs) for a long time and Sensex was kept high because of "favourable tax regime".
The unprecedented fall in the stock market yesterday has once again underlined the volatile nature of the asset price boom in the country in the past two years. The bull run in stock market has been primarily driven by the FIIs who have taken advantage of a liberal taxation regime to make enormous speculative profits, said the CPI(M). Media reports suggest that the US Mutual Fund Industry has been lobbying with the Indian Revenue Department for some time to reduce even the existing tax burden, said the UPA ally.
Calling upon the UPA government to be vigilant against pressures from the FIIs, the Left party said that India's tax policy cannot be held hostage to the "whims and caprices" of the FIIs and should be determined on the basis of the requirements of resource mobilisation in order to fund the social welfare programmes.
"Re-introduction of the long-term capital gains tax and review of the DTAA with Mauritius are the need of the hour. Steps are also required to protect the small investors in the stock market who suffer the most from market meltdowns," said the CPI(M). Referring to the DTAA, Yechury said that Mauritius does not have long term capital gains tax and therefore there is no question of double taxation. The government should give a "re-look" at similar agreements proposed with other countries like Singapore, he said.
The senior CPI(M) leader also warned the government against rushing through long-term capital account convertibility saying that it will lead to high outsourced capital.
