The Hindu Business Line : Transaction tax to be graded for different market segments

THE Finance Ministry has modified the proposal on the securities transaction tax, which is intended to be imposed on the equity and debt trading for the first time.

According to Ministry sources, the proposal is not going to be withdrawn altogether, but a lower and graded effect on different market segments and players have been envisioned in the modification.

The formal announcement is expected to be made by the Finance Minister on Monday in Parliament.

Sources indicated the delivery-based equity trades would attract the highest rate, while the lowest rate would be on the bond trade.

Among the different types of equity trade, the day trading (which is squared off within a trading session) and arbitrage trade (between the derivatives and cash segments) will attract lower rate than that in the delivery-based trades in the cash market.

The draft modification has also made a provision of a set off of transaction tax against business tax, which the brokers, corporates and arbitrageurs pay under the existing provisions.

After the modification, the overall effective rate is slated to be lower than 0.15 per cent of the transactions, as originally proposed. However, the Finance Minister would finally take the decision before the announcement on effective rate on each segment and the set offs, which may be allowed.

The elements of compliance and earning profile have been taken into account before arriving at a modification, sources confirmed.

In the modification plan, any co-relation between the transaction tax and the capital gains tax, which has already been abolished for the long-term investment and slashed for the short term, is, however, ruled out.

The broking community's proposal to keep certain segments of the securities transaction out of this tax's ambit may not come through.

"The bond/debt trading fetches the lowest earning. In T-Bills the earning is as low as 0.025 per cent," a prominent securities trader pointed out.

"We are hopeful that Mr P. Chidambaram, would bring about a solution, which would not affect the trading volume itself," said an equity broker, who met the Finance Minister early this week.