The broking community has slammed the proposed transaction tax on buyers of securities traded on the stock exchange. |
They condemned not only the high rate of tax but also the lack of clarity in terms of its application. The tax will drive away day traders, leading to falling volumes in the market and thereby, increased impact costs, they said. |
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Market sources said the tax rate is way out of market expectations. A leading Bombay Stock Exchange (BSE) broker said a 0.15 per cent turnover tax is more than the average 0.10 per cent brokerage usually charged to investors. |
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"In the circumstances, the cost of a buy transaction has increased by at least 150 per cent for the buyer," he said. |
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The costs incurred in any purchase transaction will now be the transaction tax (0.15 per cent), brokerage (0.10 per cent), and the enhanced service tax of 10 per cent, as against the average brokerage of 0.10 per cent plus 8 per cent service tax earlier. |
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Andrew Holland, international head of research at DSP Merrill Lynch, said no country in the world levies a transaction tax on purchase transactions, though at least three Asian countries have such a levy on the sales leg of stock market transactions. |
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Indonesia levies a 0.10 per cent transaction tax on sales while South Korea has a 0.15 per cent tax on sellers of listed securities. In Taiwan, equity sales transactions attract a transaction tax of 0.30 per cent while debt sales transactions are charged 0.10 per cent. |
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Indeed, the markets were in great turmoil as the FM read out his speech because the issue of application of the tax was vague. |
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Later in the customary post-Budget press conference, a top finance ministry official said the tax is only on delivery-based transactions, but later clarified that the tax is applicable to all stock market transactions. |
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Debt fund managers said clarity was required on whether the tax is applicable only to equity transactions or to all other exchange-traded products like futures and options and debt also. |
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Naval Bir Kumar, managing director, Standard Chartered Mutual Fund said, "Though further clarity is required on the transactions tax, we believe that the new tax will not be applicable on debt transactions as capital gains are anyway not applicable to it," he added. |
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