Finmin weighs options, talks to exchanges

CBDT against reduction in STT rate.

The finance ministry on Monday discussed around two dozen initiatives with representatives from stock exchanges in a bid to deepen the country’s capital market. The talks focused on the reduction in the securities transaction tax (STT) rate.

A senior official from one of the exchanges who attended the meeting said the ministry was looking at the possibility of rationalisation of the STT rate and a reduction in its quantum.

The proposal was discussed along with over 20 initiatives — all of them aimed an enhancing market participation. That included SME exchanges and development of regional exchanges.

The ministry, he said, may announced some of the resultant steps over the next few months.

“As far as the STT is concerned, the ministry will now internally discuss the proposal with departments concerned before taking a final decision. Maybe in the (next) budget,” the official said.

Senior officials from BSE, NSE, MCX-SX and USE attended the meeting, along with joint secretary (capital markets) Thomas Mathew and officials from the revenue department.

A senior official with the Central Board of Direct Taxes, reacting to the proposal, said a reduction in the STT rate was “highly unlikely at this juncture”. Reason: “it is not going to serve any purpose.” Securities and Exchange Board of India had said last week that transactions cost were high in Indian capital markets, even as the market regulator’s chairman, U K Sinha, stressed that it was for the government to decide on reducing STT.

STT contribution to the tax kitty has been around Rs 7,500 crore a year. The finance ministry has initiated the discussions on rationalising it as part of steps to boost market participation.

It was in the 2004 Budged that the government introduced the tax, levied on both buyers and sellers in delivery based trades.

The STT rate has come down over the years from 0.15 per cent levied initially. Currently, a 0.125 per cent tax is levied on both buyers and sellers in case of delivery-based trades.

Market entities are pushing for a further reduction in the STT on the premise that it would help improve market sentiment.