Budget wishlist: Broking community seeks time limit on Sebi proceedings

The broking community has requested the central government to impose a time limit on markets regulator Securities and Exchange Board of India (Sebi) regarding initiation of proceedings and show-cause notices.

The request was part of the Association of National Exchanges Members of India’s (ANMI’s) Union Budget wish list.

In a submission to the Union government, the brokers association said the Sebi Act does not prescribe any period of limitation on initiation of proceedings. This results in several proceedings being initiated by the Sebi several years after the alleged violation, resulting in hardship to market participants. Moreover, it affects their ability to respond to such show-cause notices effectively.

The submission said the Income-Tax Act had a time limit prescribed for issuance of notices and did not give such sweeping powers to the department.

The submission said the securities appellate tribunal had in several cases held that such long delays in issuing a show-cause notice were fatal to the proceedings. It set aside Sebi’s orders on such grounds, without even going into the merits of the case.

The brokers association also requested the government make dividend up to Rs 10,000 per company tax-free. Any dividend over and above that limit to be taxed as regular income. The dividend is now treated as ordinary income in the recipient’s hands and is taxed at the maximum marginal rate. The ANMI said this led to double taxation since the company declaring the dividend had already smarted under corporate tax.

Moreover, people in the highest tax bracket pay tax on dividend income at 42.7 per cent, and the cumulative tax rate on dividend income is the highest in India.

The ANMI further requested the government to rationalise the goods and services tax (GST) rates for the broking industry. The submissions said the capital market was among the first industry to be included in the service tax regime’s ambit and had continuously seen an upswing in GST rates from a nominal 5 per cent to 18 per cent.

“A rationalising effort of reducing the GST rates to 12 per cent may stimulate the sentiments of various market participants just by an insignificant reduction in tax collection,” stated the note.

The note requested the government to do away with the concept of speculative incomes and limit categories of classification of incomes arising out of capital market transactions to business income, long-term capital gain, and short-term capital gain.

The brokers association said too many classifications created fungibility problems regarding profits or losses incurred in different types of trades. For example, intraday cash market trading is classified as speculative income, but intraday derivative trade is classified as business income.

Globally trading positions are treated as ordinary business income, and investment positions are treated as capital gains.

The ANMI also requested the government to reintroduce the rebate for securities transaction tax and commodities transaction tax.