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Budget 2019 has passed the burden of collecting stamp duty on financial market transactions, including debt and equity, to exchanges such as BSE and NSE instead of brokers.
Stamp duty is a key constituent that adds to the cost of trading and broker associations had demanded that the tax be completely abolished as it amounts to double taxation. Stamp duty was collected by brokers on behalf of States and rates varied. While the brokers had sought complete abolition of this duty, the Centre has changed the modality of who collects it and has made it uniform.
Equity, bonds or commodity already attract Good and Services Tax (GST), securities transactions tax (STT) and capital gains tax but these go to the Centre. After observing how the STT regime resulted in substantial revenue, State governments sought to convert stamp duty into ‘a me-too State STT’. They amended the Stamp Act to change the definition of ‘instruments’ to cover ‘record of transaction’. As every legitimate business does keep a record of every transaction, the chargeability, therefore, is on every transaction. Even transactions that are not bilateral in nature (proprietary transactions) and that do not entail a contract of any kind between a member and its constituent are deemed covered now.
‘One nation, one tax’
“State governments browbeat the broking community on stamp duty, which violates very principle of the Act. This has led to a clear double taxation of securities transactions and multiple taxation for the same transaction, totally against the principle of ‘one nation, one tax’. The States do get their entitlement of STT as per the revenue sharing formula. Additional burden of a State STT disguised as stamp duty is neither justified nor fair,” said Uttam Bagri, Chairman, BSE Brokers Forum.
Stamp duty is levied on total turnover and it varies from 0.01 per cent to 0.0025 per cent based on delivery or non-delivery trades. There were some States that did not levy any stamp duty to lure financial market intermediaries, but with the change in collection regime all States will now start levying the duty, brokers said.
Brokers had told the Finance Minister that keeping both STT and stamp duty is improper as both amount to the same kind of tax. The only difference was that one went to the Centre and the other to the State government. Brokers were of the view that government already collects tax on profit and every transaction, so additional burden of stamp duty on equity market traders was not justified.
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