The Superficially Intuitive Case Against Capital Gains Tax I must admit I was a clown To be messin' around But that doesn’t mean That you 'ave to leave town Come back Baby, come back – Panto Banton, 1994. My column in @91basispoints (Free to read). A small-scale industry has emerged blaming the 12.5% long-term capital gains tax on Indian equities for the FIIs selling Indian stocks. At the forefront are those in the business of managing other people's money, the OPM wallahs, who seem to believe that if the tax goes, the FIIs will come running back. But these were the same people who welcomed the Budget when the tax was reintroduced in 2018 and when it was increased in 2024. Back then, they were happy to give the government’s Budgets a 12.5 on 10. Now that the stock market has gone nowhere for two years, the tax has suddenly become the villain. There is another small problem with this argument. In 2024-25, the government collected ₹ 1.29 lakh crore through this tax. If it scraps the tax, that money has to come from somewhere. Either we pay more taxes elsewhere, the government borrows more, or it cuts expenditure. There is no free lunch. Meanwhile, from April 2024 to September 2026, FIIs sold ₹4.8 trillion worth of Indian stocks, while equity mutual funds received net inflows of ₹9.5 trillion. Further, the Employees’ Provident Fund, the National Pension System and insurance schemes have also been buying stocks. All buyers require sellers and vice versa. And FIIs are not the only ones selling. Company promoters, venture capitalists and private equity firms have also been selling their holdings, including through IPOs. And what makes the OPM wallahs so sure that scrapping the tax will bring FIIs back? The tax makes a one-eighth difference to their gains. Is that enough to change their minds? Or will it simply make selling easier, with domestic investors continuing to buy? The OPM wallahs can keep singing Baby, Come Back. But will the FIIs listen? basispointinsight.com/Story/…