There may be no change in the rate of the Securities Transaction Tax or introduction of Commodities Transaction Tax in this year’s Budget.
Finance Minister P. Chidambaram, in his first Budget speech during the UPA-I regime, way back in 2004, introduced Securities Transaction Tax (STT) as a tool to track equities trade. STT rates have undergone changes several times.
At present, an investor pays STT at the rate of 0.1 per cent on delivery-based transactions in the stock market. It means he will have to pay Rs 100 on a transaction of Rs 1 lakh.
Interestingly, in the 2008-09 Budget, Chidambaram proposed the introduction of the Commodities Transaction Tax (CTT) on the lines of STT on options and futures. His argument was that transactions in commodity futures had come of age.
However, this proposal was not notified and was finally dropped after the Prime Minister’s Economic Advisory Council raised questions on the justification.
Now, there are demands to impose CTT and raise STT. “Hectic discussions on both the issues are on and it appears that the Finance Ministry may not make any change in any of the two taxes,” a senior Government official told Business Line .
Bourses oppose
This indication has come at a time when the five top commodity exchanges — MCX, NCDEX, NMCE, Indian Commodity Exchange and Ace Commodity Exchange — have come together to oppose any proposal to levy CTT. It is also believed that the Ministry of Consumer Affairs, Food and Public Distribution is not in favour of CTT.
The commodity exchanges’ main argument is that exchange-traded commodity derivatives are for hedging price risk.
At the same time, they apprehend that an increase in cost of trading will drive away hedgers from the transparent platform, besides depriving farmers of the price signal emanating from the exchange. They also claimed to be working on a wafer-thin margin and collecting a transaction charge of just Re 1 per lakh to attract investors.
The STT issue came into the picture when the Parthasarathi Shome Committee, in its draft report on GAAR, suggested abolishing capital gains tax and compensating it by raising STT.
High tax
Although the final report did not talk about hiking STT, stock brokers said that they do not favour the concept of STT itself, forget raising the rates. They said that this levy accounts for almost 50 per cent of total transaction cost. Even market regulator SEBI has repeatedly said on record that this tax is high.
However, keeping revenue considerations in mind, the Finance Ministry may not lower STT, the official said.
The Finance Ministry managed to get Rs 3,294 crore during April-December against the target of Rs 5,920 crore for the financial year.