The Hindu Business Line : A clean cut

Nothing is certain, they say, except death and taxes. Similarly, with most tax books, nothing can be more certain than mystification. Which is why one was diffident opening Samir S. Mogul's book, Taxation of Shares & Securities with Securities Transaction Tax. Well, the book has factored in the latest Budget changes, and is about one of the newest taxes, but chapters 1 to 3 may disappoint because they delve into elementary tax concepts that one can pick up from any graduate text on income-tax. Yet, one justification is that those are relevant to any discussion on shares and securities.

Chapter 3 is on STT or securities transaction tax, the neat and efficient tax, as Finance Minister P. Chidambaram had extolled, but Mogul's discussion is anything but that. When the FM spoke of levying "a small tax on transactions in securities on stock exchanges," in paragraph 111 of his speech on July 8, 2004, his inspiration was traceable to the Nobel laureate James Tobin, who had proposed a tax at a fraction of one per cent on international financial transactions, so as to discourage speculation. Quite unhelpfully, there is no index in Mogul's book, so one wouldn't know if there were any references to Tobin in the work under review.

According to the FM's calculation, `the new tax regime' was to be "a win-win situation for all concerned," and, to warm his heart, stock markets raced to end at a near five-month high on the debut day of the securities transaction tax on October 1, last year. That the tax is nothing new is what one can know from a 1993 working paper of John Y. Campbell and Kenneth A. Froot titled, "International experiences with securities transactions tax," from the National Bureau of Economic Research. The paper notes that when the US thought of the tax in 1990, estimates showed that the tax had a potential to raise $10 billion. Last year, the FM was eyeing Rs 25,000 crore as possible collection from STT. An indication that is, of the importance of the tax, and the topic of Mogul's choice.

The author devotes separate sections to investors and traders. Novices searching for the meaning of `security' will find help tucked in the para titled `short term capital asset'. There, reference is made to the Securities Contracts (Regulation) Act, according to which `securities' include shares, scrips, and so on, and also `security receipt' as defined for the securitisation law. So you may need to travel to that other legislation to know the same, without the book's help.

Usually tax authors suffer from the malaise of quoting ad nauseam provisions from the statute, without paraphrasing the legal mumbo-jumbo for lay readers. Helpfully, Mogul gives an analysis after citing the appropriate Section of the Income-Tax Act; an example is the one about `transactions not regarded as transfer' where there is a clause-by-clause exposition.

There are shaded boxes where the author hastens to add counsel to readers. For instance, in the chapter on mutual funds, he advises investors "to carefully pick the dividend or growth option or systematic withdrawal plan before investing in mutual fund schemes so as to maximise their returns after tax." Elsewhere, he points out that it is a myth to think that investing long-term capital gains in specified tax saving bonds under Sec 54EC of the Act "is always better than paying taxes." Instructive comments, these. The book is replete with numerical examples, called `case studies', and these should whet the appetite of pencil pushers.

"I wish the government would put a tax on pianos for the incompetent," is a quote of Dame Edith Sitwell that may equally apply to those who bring out inept literature. Yet, Mogul's work can yield returns, if only you have time to invest in deciphering its contents.

dmurali@TheHindu.co.in

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