Kid gloves for speculators

S. Muralidharan | Updated on March 22, 2011 Published on March 19, 2011

 It is time the government went for the jugular and mandated deduction of a 30 per cent tax from speculators in the markets.

Windfalls like winnings from lotteries, contests etc are taxed at the maximum marginal rate — 30 per cent - irrespective of one's total income.

In other words, windfalls come for punitive taxation a la disclosures in an amnesty scheme or income unearthed in a raid which attracted a flat 60 per cent tax for over a decade before the regime was replaced by the regular one. And to complete the peremptoriness and brusqueness of the regime, no expenses whatsoever are allowed while computing income from windfalls.

Thus if one wins a lottery of Rs 10 lakh, he has to cough up a 30 per cent tax on it. If the taxman can deal with the lucky ones with iron hands, one would expect him to deal with wily speculators with greater toughness. But sadly that is not the case.

It is common knowledge that our bourses are dominated by speculators ,with the derivatives segment registering larger volumes of trade than the cash segment. And in the derivatives market on currencies and interest, speculators virtually have a stranglehold.

Why hasn't the income-tax law then reached out to their income with the same rapaciousness as it reaches out to windfalls? Why is speculators' income computed in the normal course and taxed at normal rates of taxation whereas the lucky ones begetting windfalls are buffeted from both the sides - no expenses and tax on gross receipts. Let not the taxman fob off this genuine concern with the same disdainful nonchalance with which the successive finance ministers have rejected the plea for taxing foreign institutional investors — they will desert Indian bourses if taxed! This is just plain hilarious and juvenile.

Speculators might lend depth and breadth to the market just as FIIs undoubtedly have, but that is no ground to handle them with kid gloves. It is not only the share and currency markets that the speculators have taken by storm. Their omnipresence extends to commodity markets as well. It has been found that Tax Deducted at Source (TDS) is an excellent bulwark against tax evasion, besides expediting tax collections.

Happy with STT

The government is smugly satisfied with what it gets by way of Securities Transactions Tax (STT) from the transactions done on the bourses, with the NSE and BSE eminently suited to deduct tax from sellers and collect tax from purchases. It is time the government went for the jugular and mandated deduction of a 30 per cent tax from speculators. The bourses with their excellent IT infrastructure would be able to rake in moolah for the government by truckloads.

There is no point bemoaning the rather low tax-GDP ratio of about 11 per cent when the government lets off people with enormous incomes and capacity to pay. One hopes the employees of the Income Tax department freed from the rigmarole of processing employees' returns are used for more productive purposes, including to zeroing in on speculative income.

As it is, all that the Income-Tax law does by way of acting tough with speculation, is to put the speculative losses in the doghouse – they cannot be set off against normal income.

In other words, speculative losses can be set off only again income from speculation within four years. And even this have not been done wholeheartedly - losses from F&O segment of the share market has been bailed out of the speculative loss categorisation.

(The author is a Delhi-based chartered accountant.)

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Published on March 19, 2011
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