Turnover tax solution emerges after meet
New Delhi: A solution to the transaction tax row appeared to be in sight after a one-hour meeting between representatives of stockbrokers and finance minister P Chidambaram here on Tuesday. SEBI chief G N Bajpai was also present.
According to official sources, the emerging solution could take shape along the following linesthe transaction tax of 0.15% on the purchase of shares would stay, but the market intermediaries including brokers, jobbers, day-traders and arbitrageurs would not be covered. They would be taxed on the basis of their business income under the pre-budget system.
The pre-budget regime of capital gains tax would continue to apply, but it would be enforced more vigorously to check revenue leakage.
Market intermediaries generally do not stand to benefit from the abolition of the long-term capital gains tax and the reduction of short-term capital gains tax to a uniform rate of 10%. The transaction tax, therefore, comes as an additional burden for them on top of the corporate tax they are liable to pay. In the case of bonds, transactions both through the stock exchange and the negotiated dealing system (NDS) would be treated at par as far as the transaction tax goes.
FinMin to hear banks, bond market dealers
New Delhi: With the row on transaction tax set to be resolved, it is understood that in the case of bonds, transactions both through the stock exchange and the negotiated dealing system (NDS) would be treated at par as far as the transaction tax goes. Since the bulk of the bond transactions are done through the NDS and these transactions are in any case proposed to be kept out of the transaction tax net, it is possible that a small part of the bond transactions which are done through the stock exchanges would also get a waiver. Alternatively, all bond transactions, regardless of the trading platform, would be brought under the transaction tax, which would be levied at a lower rate of 0.05-01%.
The finance ministry would take a more concrete view with regard to the tax treatment of bond transactions only after hearing from the key playersbanks and bond market dealersin the next few days. The Reserve Bank of India, which had assured the bond market players that it would help find a solution, has already apprised the finance ministry of their difficulties.
It is being argued that although the proposed transaction tax is not on the trade margin but is on the purchase of the bond and, therefore, is to be levied on the value of the bond, the tax at 0.15% is out of line with the very low margins at which bonds are traded. The tax could dry up speculative trade in bonds and thereby, reduce liquidity in the market. The finance minister will soon meet representatives of banks and bond dealers to listen to their difficulties.
The delegation of stockbrokers apprised the finance minister about the difficulties being faced by different categories of market players on account of the proposed transaction tax and urged him to evolve a solution keeping in view the varying tax profiles of domestic investors, FIIs, NRIs and market intermediaries, including brokers, day traders and arbitrageurs.
We are confident that the finance minister will take our views seriously and consider differential rates for different categories of market players, former BSE president Deena Mehta said.
We have got a positive feeling. As this message goes down that the finance minister is looking into our difficulties, I am confident that the agitation and protest by some section of marketmen will soon be over and the market volume will get back to normal as the problems are redressed, said V V K Prasad, alternative president of the NSE dealers association.
Mehta made it clear that the delegation had not sought the withdrawal of transaction tax. In fact, she said the new system of transaction tax with the abolition of the long-term capital gains tax and the lowering of shortterm capital gains to 10% would benefit investors, who form the overwhelming majority of the estimated 3.5 crore people linked to the capital market.