Right time to scrap tax on share trading: ICICI Sec

Pitching for the need to lower investors' costs for trading in stocks, top equity brokerage house ICICI Securities today said the government should look into phasing out the Securities Transaction Tax (STT).     

"We believe that to create more efficiency in the market you need to reduce the transaction cost so that one can buy and sell freely. So we feel that perhaps it is good time to review that decision (to impose STT)," I-Sec MD & CEO Madhabi Puri Buch told PTI over telephone.     

"It was brought in at a time when perhaps it was considered appropriate. If we look at it in the changed environment and look back at the decision and see what has been its impact, it appears that the it may be worth relooking again," Buch said, when asked if she endorsed the demand for phasing out the tax.      

The tax, which was introduced in Budget 2004-05 and currently stands at 0.125 per cent of every trade value, is imposed on both buyers and sellers of the shares.     

The government collected over Rs 8,500 crore through STT in 2007-2008, but it fell to a little over Rs 5,400 crore in last fiscal and in the first two months of the current financial, they are said to be down by 25 per cent at Rs 750 crore.

With the budget for the current fiscal round the corner, demands have been pouring in from various segments of the market for phasing out the tax on the ground that higher cost of trade could be an impediment in the growth of market.     

Recently, representatives of the Association of National Stock Exchange Members of India (ANMI) also met Finance Minister Pranab Mukherjee and sought removal of STT to make trading more cost effective.     

ANMI has said the present STT regime makes Indian market incompetitive in comparison to other global markets. Besides, there have been media reports that market regulator Sebi has also suggested removing the STT in a phased manner to help develop the market.     

Buch added: "I think it can be certainly said a very large number of people who create liquidity in the market are the jobbers. Many of them found that with the STT it was simply not viable to do their job and therefore, the volume of that kind of market-making trading came down."     

Jobbers keep buying or selling shares throughout the day and are primarily responsible for generating the volumes. Jobbers, arbitrageurs and proprietary trading typically account for nearly 90 per cent of the market turnover.     

While proprietary trading is also done by brokers, the arbitrageurs are those who purchase and sell a security in different markets at the same time to take advantage of a price difference. These being high turnover trading, the impact of STT is maximum on such traders.