A DECISION on the fate of the securities transaction tax (STT) paid by stock market investors is likely this week, with government officials saying the consensus view in the finance ministry is veering around to a gradual phaseout rather than complete abolition in the Budget.
The complete removal of STT is now likely to be timed along with the introduction of the proposed comprehensive Direct Tax Code, which has been in the works for some time now and, among other things, proposes a more efficient method of taxing capital gains on securities.
Demands for removal of this tax have been long made by various quarters. In its pre-budget presentation to the finance minister, stock market regulator Sebi had suggested removing the tax as it accounts for nearly half of the total transaction cost in the Indian stock market, making it among the highest in the world.
Finance minister Pranab Mukherjee, in consultation with the prime minister, is now expected to announce a road map to phase out the tax in the Union Budget on July 6, said a government official.
At preliminary discussions, finance ministry officials were seen in favour of indicating a time-frame for its complete abolition while bringing down the rates in this budget, the official told ET on condition of anonymity.
Although the capital markets division within the finance ministry wanted the tax removed completely this year, the revenue department seems to have had its way. It had recommended that STT be phased out with the rollout of the more exhaustive tax code.
The capital markets division wanted the revenue department to replace the tax with another non-distortionary tax mechanism such as long-term capital gains tax to keep the measure revenue-neutral.
The government collected Rs 5,408 crore as STT in 2008-09. Equity investors pay an STT of 0.125% for every transaction in cash for delivery of shares. Transactions in derivatives trading attract a lower STT of around 0.017%.
LOAD SHEDDING
• Finmin feels govt should indicate time-frame for abolition of STT while lowering the rates in this Budget
• Capital markets division had pitched for complete abolition of the tax in this Budget
• Revenue department wanted STT phaseout to be timed with rollout of the Direct Tax Code
• Sebi also wants tax to go as it makes up nearly 50% of total transaction cost on Indian SEs
The complete removal of STT is now likely to be timed along with the introduction of the proposed comprehensive Direct Tax Code, which has been in the works for some time now and, among other things, proposes a more efficient method of taxing capital gains on securities.
Demands for removal of this tax have been long made by various quarters. In its pre-budget presentation to the finance minister, stock market regulator Sebi had suggested removing the tax as it accounts for nearly half of the total transaction cost in the Indian stock market, making it among the highest in the world.
Finance minister Pranab Mukherjee, in consultation with the prime minister, is now expected to announce a road map to phase out the tax in the Union Budget on July 6, said a government official.
At preliminary discussions, finance ministry officials were seen in favour of indicating a time-frame for its complete abolition while bringing down the rates in this budget, the official told ET on condition of anonymity.
Although the capital markets division within the finance ministry wanted the tax removed completely this year, the revenue department seems to have had its way. It had recommended that STT be phased out with the rollout of the more exhaustive tax code.
The capital markets division wanted the revenue department to replace the tax with another non-distortionary tax mechanism such as long-term capital gains tax to keep the measure revenue-neutral.
The government collected Rs 5,408 crore as STT in 2008-09. Equity investors pay an STT of 0.125% for every transaction in cash for delivery of shares. Transactions in derivatives trading attract a lower STT of around 0.017%.
LOAD SHEDDING
• Finmin feels govt should indicate time-frame for abolition of STT while lowering the rates in this Budget
• Capital markets division had pitched for complete abolition of the tax in this Budget
• Revenue department wanted STT phaseout to be timed with rollout of the Direct Tax Code
• Sebi also wants tax to go as it makes up nearly 50% of total transaction cost on Indian SEs
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