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The Association of National Exchanges Members of India (ANMI) has asked the government to “reduce” the securities transaction tax (STT), and to restore the facility of treating STT paid by professional traders as a tax paid to be adjusted against the tax on the income from share trading (business income).
Simply put, they want the government to treat the STT paid as an advance tax that could be set off against the tax payable on the business income from share trading.
Professional traders include persons who do proprietary trading and arbitraguers and are those who show their income from shares as ‘business income’. “We are asking for two things — reintroduce Section 88E rebate which was withdrawn in 2008, and also look at reduction in STT rate as the rate is high,” Vijay Bhushan, National President, ANMI, told BusinessLine .
After that year (2008), STT collection by the government has fallen, as the withdrawal of Section 88E impacted volumes in the market, Bhushan said.
The implementation of the twin measures of reduction in STT and restoration of 88E will greatly improve the country’s turnover-to-market-cap ratio. “It will boost liquidity in the markets. Liquidity is very important for any long-term investor,” he said.
World Bank study
According to a World Bank study, India’s turnover-to-market-cap ratio has fallen by over 43 per cent to 58 in 2018 from 101 in 2004.
Between 2004 and 2018, China’s ratio increased by 81 per cent, Brazil’s by 147 per cent, South Africa by 79 per cent and Japan by 22 per cent. France, the only major G20 nation to also introduce a significant financial transactions tax saw its ratio falling 34 per cent, Bhushan said.
“In India’s case market-cap has been going up in recent years, but trading has come down. Our disincentive (STT) is so high that our trading is going down,” he said.
If STT is brought down, the volume of trading will go up and over the long term the collections will go up for the government, he said. For the cash market, ANMI has asked for 50 per cent reduction in STT rate on delivery-based equity buy/sell to 0.05 per cent from 0.10 per cent. For futures (sell), the ANMI has called for cut in STT to 0.0075 from 0.01 per cent.
It may be recalled that STT, a turnover tax on shares traded on the bourses and collected upfront at the time of putting the transaction to trade, was introduced in 2004 by the then Finance Minister Chidambaram in lieu of lower tax on short-term capital gains and ‘nil’ long-term capital gains (LTCG) tax.
To avoid double taxation, Section 88E rebate was introduced, but was later withdrawn in 2008 by Chidambaram. To garner more revenues, late finance minister Arun Jaitley had in 2018 decided to levy both STT and LTCG.
ANMI has now made a pitch for restoration of long-term capital gains tax exemption in the case of listed shares in the upcoming Budget.
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