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Home / Market / Stock-market-news /  Stock exchanges, brokers ask govt to withdraw or cut STT

Mumbai: Stock exchanges and brokers have asked the government to withdraw—or at least reduce—the securities transaction tax (STT) that has been levied on equities since 2004.

The request, part of the market intermediaries’ pre-budget lobbying, has been a key demand ever since the tax was introduced. Levied on the sale and purchase of securities on stock exchanges by the previous United Progressive Alliance government, it took effect on 1 October 2004.

The Association of National Exchanges Members of India (ANMI), an umbrella body of brokers, has requested the government to withdraw the levy or at least re-introduce a clause that allows it to be set off against tax liabilities.

ANMI’s pre-budget memorandum says government levies account for as much as 68% of the total statutory charges in the domestic cash market, which is higher than those in almost all global markets.

“The high transaction cost is an important reason for lower participation of investors in the country… With low liquidity and higher cost in equity segment, investment has shifted to other assets classes. The most significant contributor to high cost of transaction is STT," says the note, adding brokers “strongly request for withdrawal of STT in the forthcoming budget".

The association says if the government is unable to abolish STT due to “revenue constraints" then Section 88E of the Income Tax (I-T) Act should be re-introduced.

The then-government in 2008 amended the provisions for getting a rebate under Section 88E. Earlier, while one could deduct the amount paid as STT from the overall tax liability, the amendment laid down that STT be deducted from the income before tax calculation.

Naresh Tejwani, chief operating officer of Satco Capital Markets Ltd, a brokerage firm, and also the current president of ANMI, says with the enhanced levels of compliance and surveillance by tax authorities, there is no scope for manipulation and so, Section 88E of the I-T Act should be re-introduced.

Incidentally, an April 2014 report by Indian Council for Research on International Economic Relations (ICRIER) said that revenue realization from STT represented only a small percentage of gross domestic product when compared with other Asian countries and it can be argued that the “absence of such a tax could have added more to economic growth and hence, higher revenues by promoting smooth operation of the capital market".

Meanwhile, the BSE has written to the finance minister that if the government wants to continue STT, the tax should be levied on all asset classes to remove any kind of tax arbitrage.

In 2013, the government introduced a commodity transaction tax on non-agricultural contracts traded on commodity exchanges, which has been equally opposed by commodity market participants.

“It is proposed to bring all organized markets in line and on level playing field... in essence, a new transaction tax structure needs to be put in place to ensure there is no tax arbitrage across asset classes," says the BSE note. Mint has seen a copy of the note.

According to BSE, equity is an investment product and so STT should be brought down while keeping the levy high for derivatives.

Apart from STT, Asia’s oldest stock exchange also wants the government to simplify listing and ownership norms for exchanges to encourage them to go public and get more credible shareholders with a proven track record.

BSE has highlighted the fact that leading exchanges, including Intercontinental Exchange Inc., NASDAQ OMX Group Inc. and Hong Kong Exchanges and Clearing Ltd are all listed either directly or through their holding companies, thereby enhancing the level of transparency.

Till date, no equity exchange has gone public in India, though reports suggest that BSE is keen on listing. Multi Commodity Exchange of India Ltd is the only listed commodity bourse in India.

In terms of shareholding, BSE wants the government to amend the current policy on ownership of stock exchanges to allow foreign exchanges to hold a maximum of 15% stake in Indian bourses instead of the current cap of 5%.

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