IVCA's Budget wish: Equal tax treatment for listed and unlisted investments

Argues that taxes on unlisted securities are nearly 2.4x those of listed ones, even as investments into unlisted firms and startups were leading asset and job creation

The Indian Venture and Alternate Capital Association (IVCA) on Tuesday called for parity in the treament of listed and unlisted investments in tax matters, and sought regulatory relaxations from the finance ministry for alternative funds.

These were some of the key pre-Budget demands made by the lobby that represents some of the top venture capitalists and private equity firms. It also held a panel discussion to lay out the "pre-budget wishlist of the industry."

The stakeholders argued that taxes on unlisted securities were nearly 2.4 times those suffered by listed entities, even as investments into unlisted companies and startups were leading to new asset and job creation.

“From the industry's point of view, all of us are cautiously optimistic (for tax relief) on the basis of discussions with the Damodaran Committee. In the last budget, we had seen a tremendous wind, when the surcharge on capital gains was brought on a par between listed and unlisted (investments),” said Siddarth Pai, founding partner at venture capital firm 3one4 Capital.

Pai added that the Indian startup ecosystem had suffered in the current fiscal year due to a major decline in the number of funding rounds and capital raised.

"We haven't seen Indian rupee capital coming in full force to support startups. One of the primary reasons behind this is that tax rates are double compared to the listed market, which is far more liquid," he said.

The demand from the stakeholders comes weeks after VC and PE industry leaders met Union Finance Minister Nirmala Sitharaman. They had urged the minister to allow perpetual capital vehicles to unlock capital flows from long-term investors such as family offices, corporates and insurance companies.

Equalisation of long-term capital gains (LTCG) tax for unlisted shares and public stock investments has been a long-standing demand from private equity and venture capital firms. Such equalisation, if implemented, may stimulate private market investments in the country, IVCA said.

Currently, LTCG tax on private stock investments is 20 per cent, while that on public stock investments is 10 per cent. The government, while announcing Budget 2022, capped the surcharge on unlisted LTCG at 15 per cent, which previously was around 37 per cent.

"We are one of the few countries in the world with such a complex capital gains (tax) framework in terms of rates of taxation, period of holding, indexation and forex-rupee calculation. Just bringing simplicity will make India a competitive jurisdiction," said Shagoofa Rashid Khan, the group general counsel and head corporate affairs at National Investment and Infrastructure Fund (NIIF), the quasi-sovereign investment platform for international and Indian investors.

Founded in 1993, the IVCA is a not-for-profit body promoting the alternate capital industry and vibrant investing environment in India. IVCA's members include active domestic and global VCs, PEs, funds for infrastructure and real estate, credit funds, Limited Partners, investment companies, family offices, corporate VCs and knowledge partners.