News Stocks WhiteOak Capital CEO Calls for Review of Securities Transaction Tax and Dividend Double TaxationWhiteOak Capital CEO Calls for Review of Securities Transaction Tax and Dividend Double Taxation
WhiteOak Capital CEO Aashish Somaiyaa has called for a comprehensive review of India's securities transaction tax and dividend taxation framework ahead of Budget 2026. He highlighted that STT was originally introduced to replace capital gains tax, but now both taxes exist simultaneously, creating double taxation. Somaiyaa noted that dividend taxation is particularly onerous as companies pay from post-tax profits and shareholders are taxed again, potentially discouraging dividend payouts and weakening corporate governance.
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Aashish Somaiyaa, CEO of WhiteOak Capital Management, has identified structural taxation issues that require urgent attention ahead of Budget 2026, particularly focusing on securities transaction tax and dividend taxation frameworks that he describes as creating double taxation scenarios.
Taxation Framework Concerns
Speaking at the ETMarkets Budget Roundtable in Mumbai, Somaiyaa highlighted significant concerns with India's current taxation structure for market participants. He emphasized that securities transaction tax was originally introduced as a substitute for long-term capital gains tax, but the current framework now imposes both taxes simultaneously.
| Tax Issue | Current Problem | Impact |
|---|---|---|
| Securities Transaction Tax | Originally replaced capital gains tax, now both exist | Creates additional transaction friction |
| Dividend Taxation | Companies pay from post-tax profits, shareholders taxed again | Constitutes double taxation |
| Relative Tax Burden | Higher taxation compared to other global markets | Affects FII investment decisions |
Foreign Investment Perspective
As CEO of WhiteOak Capital, which manages about $7 billion as a Foreign Institutional Investor, Somaiyaa provided insights into how taxation affects foreign investment flows. He noted that when managing an emerging market fund domiciled in Dublin, investments in most global markets do not incur taxes, but investments in India require tax provisions upon exit.
Key challenges for foreign investors:
- Higher relative taxation compared to other markets
- Need for tax provisions when exiting Indian investments
- Lack of parity with global investment destinations
Dividend Taxation Structure
Somaiyaa expressed particular concern about India's dividend taxation framework, describing it as "quite onerous" due to its double taxation nature. Companies declare dividends from post-tax profits, and when these dividends reach shareholders, they face taxation again.
Potential Governance Impact
The current dividend taxation structure may have unintended consequences on corporate governance:
- Disincentivizes dividend payouts: Companies may prefer retaining earnings rather than distributing them
- Weakens shareholder returns: Double taxation reduces effective dividend yields
- Contrasts with global practices: Countries like Brazil have minimum dividend obligations, while India appears to discourage dividend declarations
FII Flow Analysis
Somaiyaa attributed recent Foreign Institutional Investor outflows to two primary factors rather than taxation issues alone. The domestic economic slowdown became evident in 2024, with GDP growth moderating to around 5% and flat earnings growth, while RBI policy remained restrictive.
Simultaneously, the AI-driven rally in the US attracted capital to markets perceived as more central to the AI theme, including China, South Korea, and Taiwan. This led to inevitable rebalancing within emerging market allocations.
Budget 2026 Expectations
From a market perspective, Somaiyaa outlined specific expectations for the upcoming budget:
- Review of double taxation areas: Particularly dividends from listed companies
- Securities transaction tax evaluation: Given that long-term capital gains tax has been reintroduced and raised multiple times
- Reduction of transaction friction: Addressing layers of taxation that impede market efficiency
Somaiyaa emphasized that while taxation is not the primary driver of recent FII outflows, addressing these structural issues would improve India's competitiveness as an investment destination and create a more equitable framework for both domestic and foreign investors.
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