Brokers' body sends list of demands to finance ministry

Tax rebates, removal of additional tax on dividends, streamlining of GST among demands

The Association of National Exchanges Members of India (Anmi), an industry lobby for brokers, has sent a list of demands to the finance ministry to help “catalyse the development of the capital market ecosystem and unlock its full potential”.

The industry body came up with a six-point agenda from its ninth international convention in Mumbai, on Saturday. 

The brokers body asked for a rebate on the securities transaction tax (STT). Higher cost of transactions due to the STT has impacted volumes and revenue generation, it said. Also, lower transaction cost in equity trading would help widen the securities markets for retail participants.

Anmi further said there was a need to focus on facilitating the access of useful and affordable financial products and services, not just banking services to all individuals and businesses. K Suresh, president of the Anmi said “The cause of financial inclusion can be truly realised only if the masses have access to a full range of financial products, not just banking services. The need of the hour is to channelise small savings, like the amount lying in Jan Dhan Yojana accounts into appropriate financial products, which would not only fire up the agenda of financial inclusion but also strengthen India’s capital market.”

Apart from a rebate in STT, market participants urged the government to abolish the dividend distribution tax (DDT). Amni asked the Centre to amend the Section 14A, Rule 8(d) of the Income Tax Act, which seeks disallowance of expenses, thereby making dividend income inconsequential. “Inclusion of dividend into ‘exempted’ income is misleading and untrue, as dividends are already taxed by the DDT,” it said.

Anmi said the Section 88E of the I-T Act should be re-introduced. Under this section, which was removed in 2008, brokers could deduct the amount paid as STT from the overall tax liability, helping them reduce their tax outgo. “STT is a burden on equity transactions. It was introduced in lieu of the capital gain tax. But, the business had dried up after the levy of STT,” said Ashishkumar Chauhan, managing director and CEO of the BSE. 

Over the past 25-30 years, income of brokers has come down purely from equity trading business, the number of active clients were also reduced and they are generating business from other areas such as mutual funds and insurance distribution. “The brokerage fee has declined to as low as one basis point (bp) now, from 400 bps nearly 25 years ago. An exchange will not survive without the survival of its brokers,” Chauhan said. 

He added that there was an urgent need to increase trading hours so that Indian market participants can take advantage of the developments after the closing hours. “Why are Indian participants deprived of the benefits of the corporate or regulatory developments, when the same is allowed for foreign traders at exchanges abroad? By the time they wake up, the entire benefit is taken up by investors at foreign exchanges,” he said. 

Vikram Limaye, managing director and CEO, National Stock Exchange (NSE) said, “Extending the trading hours by one or two will not help. If we are talking about integration of equity with commodity brokers, anyway the system is functioning till 11:30 pm. Extending timings similar to that of commodity markets would certainly help.”

Arundhati Bhattacharya, former chairman of the State Bank of India, stressed upon financial inclusion through incorporation of micro, small and medium enterprises (MSMEs) into the system. Mrugank Paranjape, managing director and CEO of MCX also said that only 5-10 per cent of 120 million MSMEs have been included. 

Anmi further requested the government to streamline GST requirements for market intermediaries. The GST rates have created “a tremendous burden on the financials of intermediaries” it said. “Market intermediaries like a sub-broker should be exempted from the registration under GST, as they do not raise any invoice on the clients and/or total obligation from clients including GST, which is paid by the broker.” The industry body asked the Centre to provide “industry status” for the broking business. “The stock broking community is the backbone of the capital market of the country. The number of people employed in the business across the country runs in millions,” Anmi said.