FE Editorial : No equity here

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The Financial Express: Jan 23 2013, 02:10 IST

Given the Rs 50,000 crore of daily volumes on commodity exchanges in the country, it’s not surprising the finance minister should once again be contemplating imposing a securities transaction tax (STT) type of levy on such sales/purchases. Based on today’s STT rates, this will mean extra revenues of R2,040 crore a year from commodity exchanges. Indeed, even on level playing field grounds, the proposal seems fair. After all, if such a tax is levied on one form of investment, why not levy it on the other type of investments that people make? Indeed, if a commodity transaction tax (CTT) is to be levied, the finance minister can even think of lowering the STT on equity. In other words, the proposal is a win-win.

The problem is that while this sounds fair, it isn’t. For one, investments in equity and commodity face very different tax structures, and that’s 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

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Vinay Shah | 23-Jan-2013Reply | Forward

The way media can be used by vested interest is evident from this piece. For the reasons which are not very transparent, media has totally ignored the national interests. When the country is facing the challenge of downgraded and the pressure to reduce fiscal deficit, media should not allow itself to be used as the hand-maiden of the vested interests to lobby on their behalf just before the budget.