Govt may replace STT with non-regressive law

The government may do away with Securities Transaction Tax (STT) in the Union Budget for 2009-10, a senior government official told reporters today.

“Institutions like the Securities and Exchange Board of India, and economists in their pre-Budget meeting have strongly pitched for the removal of STT as it is a distortionary tax,” the official told reporters.

However, the STT could be replaced by some non-distortionary tax, the official said.

STT is a tax imposed on the sale and purchase of securities, including shares, derivatives or units of mutual funds, traded on a recognised stock exchange. At present, the STT rate is 0.125 per cent of the total volume of the transaction.

Market participants have been seeking removal of the tax ever since it was introduced in the 2004-05 Union Budget.

The tax is levied on both buy and sell transactions.

“Removal of STT will make our stock market transactions one of the cheapest in the world,” the official said.

Separately, the official said the government is likely to allow infrastructure-based special economic zones to raise money via external commercial borrowing.