The broking industry is looking forward to a few sops this year from the Union Budget. Everything from securities transactions tax to stamp duty is on their minds. The industry, which has borne the burnt of poor market conditions, is looking forward to some reforms in these segments to give their dwindling business a boost.
The first on the list is the securities transaction cost (STT), which the industry wants lowered. Currently, the STT for futures and options transaction is 0.017 per cent, for capital market (delivery) 0.125 per cent and for capital market (intra-day) 0.025 per cent. “…the Finance Minister may reduce the STT by 25 per cent. The possibility of hike in short-term capital gains tax and also bringing long term capital gain into the tax bracket cannot be ruled out,” said a budget expectations report from SMC Global Securities.
Some broking houses are even in favour of the removal of the STT altogether as they believe that this will help bring in more retail investors. However, this may still not help the industry, others say. “In current volatile market conditions, when the market is not giving adequate returns, retail investors are staying away. So, reducing the STT will not make too much difference,” said the head of a broking house.
Another matter of concern for the broking industry is the lack of uniformity in the collection of stamp duty. At present, stamp duty levied is based on the location of transaction, which is proving disadvantageous to broking firms. “There is an arbitrage that is created in the tax structure because of the differences in the stamp duty paid. This then changes the total cost of the trade to the customer,” said Mr Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities. For instance, if the stamp duty levied in Mumbai is five per cent and that in New Delhi is 2.5 per cent.
With respect to the commodities transaction tax, the industry is not really in favour of it as the commodities trading market is a thin margin market. “If the CTT is implemented, then the liquidity in the commodities markets will dry up and move to the currency futures market. This tax will be a death knell to this market,” said Mr. Sudip Bandyopadhyay, MD & CEO, Destimoney Securities.
Also, there should be an emphasis on the infrastructure funding gap. The limit for minimum investment for tax-free bonds should be raised from Rs. 20,000 to Rs. 5 lakh as this would then lead to mobilisation of higher savings into the capital markets, they said.