The problem is that while this sounds fair, it isnt. For one, investments in equity and commodity face very different tax structures, and thats not even taking into account that firms have no option but to hedge in commodity markets, while investing in shares is clearly not in the same league. So while commodity spot markets have to pay various taxes like octroi, mandi taxes, VAT and even excise, none of this applies to equity markets. Indeed, while there is no long-term capital gains tax on equity transactions, commodity transactions are taxed as speculative trades at the highest rate of 33%. It is true F&O transactions on equity markets are also taxed at the highest marginal tax rate but since these are viewed as business transactions, profits here can be set off against losses elsewhere.
The larger issue, of course, is of what the proposed tax will do to commodity markets and, therefore, to government revenues. Its useful to keep in mind that the STT collections on equity markets has also fluctuated a lot depending on the volumes of transactions. These fell from R7,394 crore in 2009-10 to R7,155 crore in 2010-11 while the Sensex rose; they collapsed to R5,200 crore in 2011-12 as the Sensex fell around a fourththough the Sensex has recovered by around a third this year, there are as yet no details of STT earnings. Equally interesting, thanks to the STT and also the fear of GAAR (till the government announced it being put off), a very large part of Indian share market transactions now take place overseas. In December, while the NSEs average daily turnover was R6,425 crore, the average turnover of Nifty futures on the Singapore SGX was R3,608 crore. During the period when contracts were to be rolled over, SGX turnover was greater than that of NSE, the parent exchange. The possibility that a large part of the commodity market could simply get exported, or even go underground (that is also the fear with the government now raising gold import duties) is something the finance minister needs to keep in mind.