Market participants seek lower STT, CTT

Mumbai: Market participants want the finance minister to remove or cut down rates of securities transaction tax (STT) and commodities transaction tax (CTT) to boost falling trading volumes. Owing to STT and CTT, the market depth in India is the lowest amongst global peers and is a deterrent to price discovery, said a presentation sent by the Assocaiton of National Exchanges Members of India (ANMI) and the Commodity Participants Association of India (CPAI) to the finance ministry.

“Trading cost in India is significantly higher than trading similar instruments globally, leading to poor volumes, low liquidity and high impact cost in India,” they said.

The government collected '11,000 crore from STT levied of transactions in securities band '667 crore from CTT levied on transactions in commodities, but this came at the cost of lower trading volumes in the markets.

Since 2007-08 when STT rebate under section 88 E was removed, the market capitalisation rose 194 per cent at 10 per cent CAGR while turnover rose 4.99 per cent, leading to a 43 per cent fall in the turnover-to-market cap ratio, the presentation said, citing a World Bank report.

The trading volumes of copper, the flagship industrial metal, in China is 32 times India’s and in London, 63 times India’s, the CPAI said.

After CTT introduction, volumes fell by 60 per cent from '70,000 crore in FY12-13 to '28,500 crore in FY18-19. Remove tax on turnover i.e. STT, CTT, stamp duty; or if you have them, reduce them sizably and make them “Modvatable” with direct Income Tax (i.e. Sec 88 E, treat as tax not expense),” Anmi and CPAI said.

The Association of Mutual Funds in India (Amfi) has proposed a 17-point budget wish list.

The wish list included--mutual funds be allowed to introduce low-cost, lower-risk tax exemption-linked Debt Linked Savings Schemes (DLSS), Ulips and equity MFs be brought on par on tax treatment by removing LTCG tax, abolition of STT on equity funds at redemption, abolition of DDT on dividends paid by equity-oriented funds, and exemption to switches within MF schemes from capital gains tax. The Amfi also wants MFs to be recognised as 'Specified Long Term Assets', and be exempt from LTCG under section 54 EC of IT Act 1961.

It also wants to lower the holding period in gold and commodity ETFs for LTCG purposes to one year, from three years.

Japanese Brokerage house Nomura said, “ We expect the budget to prioritise investment over short-term consumption demand, announce measures for boosting housing demand and attract more long-term risk capital.”

“For capital markets the government may choose to ease the Long Term Capital Gains tax of 10 per cent and DDT for corporates,” Nomura said.