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Budget lacks focus on small investors Finance minister could have availed of this golden opportunity to give a thrust to allure the small investors to the stock market.
The finance minister is conspicuously silent on the offer of shares of PSUs to the public. While he could be silent on the disinvestment of government holdings in the profit-making PSUs to appease the never-understanding Leftists, he could have easily announced an offer of fresh shares in these undertakings - a proposition to which the Leftists have already agreed. These shares should be offered only to the small investors so that the stagnant shareholding population of the country receives a boost.
While the reduction in the corporate tax is welcome, the finance minister should not have reduced the tax rate from 35% to 30% in respect of closely held / unlisted companies, the shareholdings in which are mostly with the affluent. Such a distinction was there till March 31, 1993.
This is all the more necessary now as buybacks and delisting of shares, particularly by multinational corporations, have become quite common, to the detriment of small shareholders.
Provisions contained in Section 45(2A) of the I-T Act providing for charging of tax in respect of beneficial interest in securities held in demat form on the basis of first-in-first-out (FIFO) need to be revised as it gives no option to match the sale against the purchase of shares.
To elaborate the point, an investor who has brought 100 shares of a company ABC on March 1, 2005, at, say, Rs 100 per share and another 100 shares of the same company on April 1, 2005 at Rs 200 per share and selling 100 shares on May 1, 2005 at Rs 150 per share is reckoned to have made a profit of Rs 10,000 at the rate of Rs 100 per share under the FIFO method.
Under the physical mode, he could show a loss of Rs 5,000 at the rate of Rs 50 per share by matching the shares bought at Rs 200 per share against the shares sold at Rs 150 per share.
Investors should be given the freedom to match the sale against the purchase of a security, enabling them to minimise the profit and maximise the loss so as to minimise the tax burden, as is allowed at present in respect of shares in physical form.
The increase in securities transaction tax (STT) by 331/3% should have been avoided.
This will widen the spreads between bids and offers, increasing thereby the impact cost. It will also affect the liquidity of the market.
Contrary to the general belief, a higher volume reduces volatility and what is needed is the constant flow of orders, speculative or otherwise, at every level of price, which will now get affected by the enhancement of STT, albeit marginally. The decision not to treat trading in derivatives as speculative transactions is, however, welcome.
The decision to appoint a high-level expert committee on corporate bonds and securitisation to look into the legal, regulatory, tax and market design issues for the development of the corporate bond market is also welcome.
The writer is Former executive director, Bombay Stock Exchange | ||
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