The proposed amendment in the security transaction tax (STT) will affect the capital market’s liquidity as the effective rate will go up by 66.66% with the proposal to treat STT as business expense. At present, the STT is being treated as a tax rebate.
Bijay Murmuria, president of the Association of National Exchanges Members of India (ANMI), said the Union finance minister P Chidambaram’s proposal to treat STT as a business income will directly affect at least 90-95% of the total market as the direct cost of business goes up by 66%.
At present, all market participants are subject to a 30% STT with a provision of 100% tax rebate for the STT paid under section 88E. The amount of STT paid is fully deducted from a participant’s income tax liability. Once the STT is considered as a business expense, it will effectively give an income tax rebate of below 33%, Murmuria said.
ANMI, a pan India body of trading members from the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), has submitted a memorandum to the finance minister on March 25 requesting him to continue STT as a tax rebate. This would not only relieve market participants but also assure the government of a minimum 33.33% tax collection, Murmuria said.
He said a lot of market participants pay excess STT than that of their tax liabilities. Although for the STT paid, the entire tax liability is rebated, the excess STT amount is forfeited and becomes an income for the government.
ANMI has also pitched for at least three self-regulatory organisations (SRO) for brokers, merchant bankers and mutual funds, respectively.
The Securities & the Exchange Board of India, (Sebi) since 1996, has taken several initiatives to form the SRO, a first level regulator for capital markets. However, only this time it is likely to take a shape. The Sebi is currently framing the guidelines for SRO, which is expected to be ready in another two months.
