Brokers bat for silver ETFs in Budget

Demand cut in STT and other income tax concessions

Brokers are lobbying the government to introduce silver exchange traded funds (ETFs) in the coming Union Budget, to bring more savings into the financial markets.

“Precious metals such as gold and silver are seen as a hedge against inflation and ETFs allow for greater liquidity than holding the metal itself,” says a proposal prepared by a brokers’ body.

Sudip Bandyopadhyay, chairman of Inditrade Capital, says silver ETFs will help small investors capture the price appreciation in silver, without physically purchasing the metal. Silver ETFs aim to track as closely as possible the spot price in the open market. These are established as guarantor trusts, where each share of the ETF represents a right to a precise amount of silver, measured in grammes.

Experts say interest in gold ETFs has been waning after the government introduced sovereign gold bonds last year. There are a dozen gold ETFs in the market, with a total in assets under management of Rs 6,300 crore, says Value Research, a funds tracking entity.

“ETFs are the right route for retail (small) investors to enter the market, particularly those who do not have the time to do their own research,” says Prasanth Prabhakaran, head of retail broking at IIFL.

Brokers want government debt securities to be trading on national stock exchanges, much like tax-free bonds and gold bonds. “There is reduced scope of price discovery in debt securities and an issuer could simply use the exchange’s electronic platform to sell bonds. Brokers can bid for clients paying 100 per cent upfront margin, exactly as in the case of an Offer for Sale,” says the brokers’ note for the Budget.

Also being demanded is halving of securities transaction tax, or STT, for cash and derivatives trade. Currently, an STT of 0.1 per cent is levied for delivery trade on both the buy and sell sides. STT on normal options trades done on the exchanges is 0.05 per cent of the selling side of the premium value. STT on buying options that get exercised is 0.125 per cent of the entire contract value. The seller has to pay STT of 0.01 per cent on futures trade.

Brokers are demanding a uniform rate of stamp duty to be charged for securities transactions across states. At present, the duty payable on contract notes has different rates. Exemption on stamp duty is sought in the currency derivatives segment.

The proposals also ask for reintroduction of section 88E of the income tax law, which allowed investors to deduct an amount equal to STT from business income. Brokers also want a clarification that no duty would be charged on self-trade and that bad debts written off by brokers be wholly allowed as business expense while computing income.

Brokers want the broking business to be accorded formal ‘industry’ status and given all the incentives provided in income tax laws as applicable to a priority sector such as banking.
BUDGET WISH LIST

• Brokers are lobbying the government to introduce silver exchange traded funds (ETFs) in the forthcoming Budget
   
• Silver ETFs will help retail investors capture the appreciation of silver without physically purchasing the metal
   
• Brokers want government debt securities to be traded on stock exchanges, much like tax-free bonds and gold bonds
   
• Want halving of STT for cash and derivatives trades, and uniformity of stamp duty across states
   
• Seek exemption on stamp duty on currency derivatives