The Finance Ministry may cut Securities Transaction Tax (STT) to boost market sentiments.
Rationalisation of STT is one of the measures being contemplated by the Ministry. Other measures include bringing tax clarity for qualified foreign investors (QFI), relief on collateral issue for foreign institutional investors (FIIs), and steps related to external commercial borrowings (ECB).
The STT is levied on sell and/or purchase of shares, equity-oriented mutual funds and futures and options in securities. According to market estimates, STT constitutes over 50 per cent of the total transaction cost for institutional players such as FIIs, while for retail players, it makes for nearly one-third of the cost.
“Rationalisation of STT is very much on the cards. The issue is when can it be done. Usually, any such change is done through Budget. But, we are considering whether this is possible before the Budget,” a senior Finance Ministry official told
Interestingly, there are divergent views on STT rationalisation. While market regulator Securities and Exchange Board of India has always maintained that the STT rate is high, the Government-appointed Shome Panel, in its report on General Anti Avoidance Rules (GAAR), suggested raising the STT rate to compensate the revenue loss from the recommendation about abolition of capital gain tax.
Market entities and various industry bodies have been demanding complete abolition of STT, which was lowered in this year’s Budget. The Finance Ministry lowered STT in the cash delivery segment to 0.1 per cent from 0.125 per cent. The official also said discussions were on for issuing tax clarification for QFIs, which will be announced soon. QFIs seek to know whether obtaining a permanent account number (PAN) would be mandatory and whether they would be asked to submit returns. The Government, on January 1, allowed foreign individuals, among others, to invest in the equity market directly.
The official said QFIs will have to file form 49 AA, which is a combination of KYC requirement and PAN application. This means fulfilling the KYC norm will automatically make them eligible for PAN. However, the tax department will issue a clarification for PAN as well as for returns soon, the official added.
Market players
Commenting on proposed measures, Vijay Bhushan, Director, Bharat Bhushan Equity Traders, said, “These measures will certainly cheer the market. But, we feel that Government should also focus on implementing steps announced earlier.” For example, the market is still waiting for the notification on the Rajiv Gandhi Equity Scheme, he added.