Brokers assail transaction tax plan

Stock Traders to take up only urgent transactions on Tuesday

Stating that the 0.15 per cent transaction tax on all equity transactions has already begun driving retail investors and speculators away from the stock markets, the broker fraternity here demanded that all participants other than foreign institutional investors (FIIs) be exempted from the proposed tax.

The Gujarat NSE Members' Association, an association of stock brokers in the state, had submitted a memorandum to the Union textiles minister Shankersinh Vaghela on Sunday, demanding that retail investors, speculators, brokers and sub-brokers be kept out of the transaction tax net.

Meanwhile, following a nationwide call of the brokers' association, brokers and sub-brokers will observe a 'go slow' protest on Tuesday, where only urgent transactions will be taken up.

Even as the Bombay Stock Exchange (BSE) witnessed the lowest trading activity on Monday, the regional stock exchanges and brokers connected to these exchanges say that if the transaction tax continues for smaller investors and speculators, the volume of trading will dip too low which will affect the survival of brokers and sub-brokers.

"The proposed tax is likely to hit more the traders, arbitrageurs and speculators who work on wafer-thin margins. Their average transaction costs as per market estimates is 0.025-0.03 per cent. The tax will rise their transaction costs by 250-300 per cent, rendering their operations unviable and will drive them out of the market," said Atul Choksi, president of the Ahmedabad Stock Exchange Brokers' Association.

Choksi added that this will have devastating effects on the volumes and the depth of the market, and will result in poor liquidity and very high impact cost for investors.

"It will also result in our markets being less efficient against the global benchmarks and will affect FII inflows on account of liquidity concerns and poor exit possibilities," he said.

Ajit Day, a leading stock broker of Kolkata, and managing director of Dayco Securities, said with a 0.15 transaction tax, the trading volume will go down further.

"The situation in Kolkata is just about the same. The introduction of this tax will actually discourage trading activity on the stock exchange, and the regional stock exchanges are already in a bad shape," he said.

Jagdish Thakkar, a noted broker from Vadodara and also a chartered accountant, stated that just the scare of the transaction tax has brought down volumes in the city to about half.

"I believe the finance minister has been misled by FIIs. They are free to invest in India or any other country and can exit whenever they wish. But such a decision leaves thousands of local investors in the lurch," Thakkar said.

He added that history has proven that the stock market has suffered badly whenever the depth is not there. "In fact, the introduction of derivatives was just a modified format of `badla' trading," he said.

Thakkar added that while it is a noble deed to cater to the needs of the poor and stress on education, the finance minister has acted against the interests of the Indian investors by announcing the introduction of the transaction tax.

Prashant Shah, a sub-broker in Ahmedabad, said that there has been very little activity on the retail front in the past two days.

"If a person purchases shares worth Rs one lakh, he will have to pay a sum of Rs 1,500 as transaction tax. At a time when margins are so low, it will actually mean that all business in stocks becomes loss making," said Shah.

He added that all brokers and sub-brokers of Ahmedabad will observe a protest by transacting just urgent business on Tuesday.

The memorandum by the Gujarat NSE Members Association says that out of a total average daily trading volume of Rs 15,000 crore on the NSE and BSE, about 10-12 per cent result in deliveries and the rest 88-90 per cent are non-delivery transactions undertaken by the traders, speculators and arbitrageurs.

"Thus, the new tax structure aims to impose additional tax burden on largest class of market participants without corresponding benefits and against the principles of equity to say the least," the memorandum says.