Why 1% tax on stock exchange turnover makes sense

By: |
January 20, 2016 12:14 AM

This Rs 8,57,500 crore per year will enable the government to substantially reduce direct and indirect taxes currently levied, thereby inducing additional investment from corporates and individuals, which will result in higher employment

The government can collect R3,430 crore per working day with very little administrative costs.The government can collect Rs 3,430 crore per working day with very little administrative costs.

The daily turnover of the National Stock Exchange Futures & Options (NSE-F&O) segment is about Rs 3,00,000 crore per day, while that of the Bombay Stock Exchange (BSE) is about Rs 25,000 crore per day. The cash turnover of both these bourses combined is about Rs 18,000 crore per day, making a total of Rs 3,43,000 crore. The government should levy a 1% tax on the turnover, which could bring Rs 3,430 crore of revenue per working day, or approximately Rs 8,57,500 crore (Rs 3,430 crore x 250 days) per year. Unless some compensating relief to the operators and investors at BSE and NSE is provided, the 1% collection will be untenable and will result in greatly diminished business.

Therefore, it is suggested that income from BSE, NSE and other Indian stock exchanges should be totally exempt from taxes such as income tax, capital gains tax, dividend tax, MAT, TDS, service tax, etc. The only practical possibility of levying a 1% tax, as suggested above, will be to make income from share, stock operations (both cash and F&O) totally tax-exempt.

Additionally, the current share transaction taxes yielding about Rs 5,500 crore per annum may also be abolished. Such a measure, if implemented, will give enormous revenue to the central government. Also, for this 1% tax, there will be little scope for tax evasion. The government will collect approximately Rs 3,430 crore per working day with very little administrative costs.

Once the above measures are decided upon, a substantial amount of money from abroad is also likely to come to the stock exchanges, thereby further increasing the revenue for the government. This will also give a big boost to the government’s plans of disinvestment in public sector units and for new private IPOs. It is suggested that any loss from cash and F&O will not be allowed to be set-off against any other income.

The annual target for indirect taxes is about Rs 6,50,000 crore and that for direct taxes is about Rs 8,25,000 crore.

Now, the Rs 8,57,500 crore per year coming through this mode will enable the government to substantially reduce the direct and indirect taxes currently levied, thereby further inducing additional investment from corporates and individuals, which will result in higher employment. The deficit can also be substantially reduced from 3.9% of GDP, as a part of the Rs 8,57,500 crore can be utilised for this purpose. A substantial amount can also be diverted to additional government expenditure. In addition, large amounts can be diverted to state electricity boards, which are also virtually sick units, and to PSU banks which urgently require infusion of additional capital.

This is a golden chance for increasing the revenue without causing inflationary effects and with minimum harassment to the public and minimum administrative costs. A suitable mechanism can be evolved to control money laundering into cash and F&O sections of the bourses.

The author is chairman, Supernova Technologies Pvt Ltd

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