Efforts on to rationalise STT, decision likely in Budget

Efforts are on to rationalise the Securities Transaction Tax (STT), a tax levied on sale and purchase of equity, and a decision in this regard could be taken in the 2012 Budget, said a Finance Ministry official.

"The idea is to rationalise STT so that the volumes in the capital markets increase without sacrificing revenue," he said after a meeting of Finance Ministry officials with the representatives of stock exchanges, brokers associations and the Securities and Exchange Board of India (Sebi).

During the meeting, stock brokers urged the Finance Ministry to remove STT as it was hampering growth of the equity culture in the country.

The Finance Ministry official, however, ruled out abolition of the levy but said the government would look take on board the concerns of the stock-broking community and was open to rationalise STT.

STT ranges from 0.0125% to 0.025% on sale and purchase of equity. The government collects about Rs 7,500 crore per annum from STT.

The ministry, according to the official, will hold another round of discussion on STT with stakeholders in the first week of November.

Market players have been demanding withdrawal of STT ever since it was introduced in 2004. It is argued that STT accounts for 51% of the transaction cost.

The removal of STT would boost volumes on stock markets, according to BSE CEO Madhu Kannan, who attended today's meeting.

"STT was definitely one of the reasons which was affecting trading in the cash segment," Kannan said.

Among other issues, the meeting also discussed the possibility of treating STT as advance tax, as was the earlier practice. Under the present norms, STT is treated as business expense and has a bearing on profitability.

"Reverting to the earlier practice would have a similar affect as reduction in the STT," the official added.

Besides other demands, representatives of the broking community also urged the government not to levy STT on SME exchanges which were likely to become operational on BSE and NSE by mid-December.