Mumbai: It's Budget month and just like last year, this year too, speculation is rife about the fate of the controversial Securities Transaction Tax (STT). At their end, capital market participants want the Finance Minister to have a relook at the rate of STT to begin with.
Single page advertisements splashed across dailies have become a popular mode of communicating to the Finance Minister and that too just before the Union Budget. The latest one ANMI (association of national exchanges members of India) and BSE brokers forum launching an advertisement campaign, seeking to draw the FM's attention, to the impact that STT is having, on their business according to them.
Volumes in both cash and derivative segment on the exchanges have fallen since STT was imposed. STT has made equity segment less viable for brokers involved in jobbing and arbitrage trade. They have been forced to shift to the commodity segment instead.
Infact, the non-agricultural commodities market has grown between 48-52 per cent in the last three years as against the equity cash market. There turnover has fallen by 30 per cent in the last five years. The growth has been negative in FY11 and FY12.
Rakesh Somani, President,Assoc of NSE Members of India, says, "How markets are taken over by the commodities market or we have even made a comparison of Nifty being traded in Singapore. What we are trying to do is tell the government that one of the major market components we had was arbitrageurs and jobbers. They have already shifted to commodity market. So, the major volumes has already gone their".
Even though they agree STT has so far been the most transparent form of tax collection, the broker community hopes that the government will restore rebate, under section 88E. At the same time ensures that the burden of transaction cost will come down, followed by an eventual phasing out.
"There is no doubt that this is one of the most beautifully articulated tax collection. Assessment is very clear and transparent. The government is getting good revenue from this market. However, off late even the STT collection is going down on a continuous basis, post 2008", Somani adds.
From the Finance Ministry's point of view, it will be difficult to do away with a clear source of revenue. Especially considering, the EU has also recommended transaction tax on financial products. However, the final verdict will be out on February 28.