Rationalise taxes, reduce STT & stamp duty: Investors

Mumbai: With just five days remaining for the presentation of Union Budget 2010-11, the capital market is expecting the finance ministry to address their demands. And once again, on top of the list is the reduction of Securities Transaction Tax (STT) and stamp duty apart from rationalisation of taxes to ensure a level playing field for all market participants.

While the market regulator, Securities and Exchange Board of India (Sebi), has recommended the government to rework STT and bring uniformity in the stamp duty across India, the mutual fund industry has requested for the removal of double taxation and asked for an equal treatment of all equity-oriented schemes.

Currently, in case of equity-oriented schemes, which have a direct 65% investment in the domestic companies, dividends are exempted from dividend distribution tax (DDT). However, in the case of ‘fund of funds’, which hold a portfolio in other investment funds rather than investing directly in the markets, it is required to pay dividend distribution tax at 15%.

“We have requested the finance ministry that the provisions applicable to all equity-oriented schemes should also be applicable for those funds of funds that predominantly invests in equity-oriented schemes of various mutual funds and should be treated at par with them,” said AP Kurien, chairman, Association of Mutual Funds of India (AMFI).

Another key suggestion from the mutual fund industry is to avoid double taxation with regards to the payment of STT that is currently being paid by both the fund house and investors. MFs at present pay STT each time they transact in securities in the equity markets. This, eventually, is charged to the investor. And when investors redeem their investment in the fund scheme, there is an incidence of 0.25% STT on the redemption, as well.

And for the investing community, Sebi had requested the ministry of finance to reduce STT by one third and rationalise the stamp duty charges so that investors across India can trade at a lower and uniform cost. Sebi feels that the stamp duty levied by each state at different rates is a major hindrance for efficient price discovery. Hence, the request is for a goods and service tax (GST) model whereby a central agency should collect a uniform stamp duty and share it among states based on an agreed formula.

Apart from this, the regulator has also recommended to do away with tax benefits enjoyed by corporates for...