The Hindu Business Line : `Tax on transactions to affect market depth'

STOCK market players have expressed concern over the introduction of tax on every transaction as they feel that this tax could lead to reduced volume on the bourses. Brokers also feel that this tax might lead to lower depth in the market, which might cause lower inflow from FIIs.

At present almost 75-80 per cent of the trades in cash market are speculative and does not lead to delivery. These brokers pay brokerage between 5-10 paise on these trades.

According to Mr Vineet Bhatnagar, Managing Director, Refco Sify Securities, "For players, who play on large volumes there will be an extra burden in the form of 0.15 per cent transaction tax and it might reduce volume".

Mr Ambarish Baliga, Vice-President, Karvy Stock Broking, said: "The proposed transaction tax would have impact on cash and derivatives trading and this tax will kill speculative trades and depth of the market".

According to Mr Abhay Aima, HDFC Bank's head of equity and private banking, though the transaction tax was generally welcome, the capital gains tax of 10 per cent for the short term trades would create additional burden for the players in futures and option segment as they already pay 33 per cent business tax on such trades.

Ms Deena Mehta, former vice-president of the BSE, told Business Line that the jobbers, day traders and arbitrageurs, who work on a thin brokerage, will be badly hit by the transaction tax. "The tax would cost them Rs 15,000 on a trade worth Rs 1 crore, while the brokerage earning on same transaction would be just Rs 2000," she pointed out adding that this dampener would dry out the liquidity in the cash segment.

"Depth in the market comes from speculative trades and in their absence there will be no depth," he said adding that FIIs while investing in market also look at the depth of the market. More funds flow into that market that has greater depth. He said this would affect the market in medium to long term.

However, he said, this was good for investors trading on delivery transaction.

Mr Arun Kejriwal of KRIS Capital, said: "Tax in its present form is an absolute disaster and will ensure that stock exchanges become extinct".

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