Column: If commodity taxes are introduced…

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PH Ravikumar: Feb 02 2013, 02:41 IST

The securities transaction tax (STT), akin to the globally popular Tobin Tax on foreign exchange transactions to curb foreign exchange price fluctuations, was introduced in July 2004 as a part of the Finance Bill by the finance minister. The purpose of the introduction of STT was to have an efficient means of collecting capital gains taxes at the point of transaction itself by the stock exchanges for the department of revenue, given the capabilities of the department to track trades and locating those who were to pay the taxes. As part of the imposition of STT, long-term capital gains were abolished and short-term capital gains were sharply reduced.

While the purpose of the imposition of STT has been achieved almost entirely (annual taxes collected are R7,000 crore—much more than the capital gains taxes collected before the introduction of the taxes), the tax has been criticised as being at a transaction level where all are required to pay the tax irrespective of whether one makes money or not and irrespective of how much profit is made. It is a flat tax for some one who makes either R1 profit or R1 crore profit—which again, on principle, is being criticised as inequitable.

STT is currently levied on almost all capital market transactions, including cash market transactions and futures and options markets. Recent press reports suggest the ministry of finance is looking at the abolition of STT and reverting to the earlier (and what is considered more equitable) capital gains taxes. The department of revenue

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Vinay Shah | 05-Feb-2013Reply | Forward

It is unfortunate that Ravikumar has sought to keep his past competitive interests above fairness and the need for all the commodity sector players talking in same voice. The argument is aimed at harming MCX , which is the competitor of NCDEX.