Transaction tax will drive away traders, warn experts

Experts have called for relook at the transaction tax on equities and mutual fund earning saying they would dry up liquidity from the stock market eventually leading to the bearish mode.

"Even though government has abolished long term capital gain tax, the transaction tax will drive away day traders who provide bulk of the volume," Abhijit Sen, noted industrialist, said.

Speaking at an interactive session on Budget 2004-5 by Merchants' Chamber of Commerce (MCC) he pointed out tax on MF earning would force large corporates for other mode of investment.

"Corporate bodies are the principal buyer of MF scheme. If they do not invest, MF would not have liquidity to invest in the market. As a consequence, the finance ministry's ambition of raising Rs 4,000 crore from transaction tax may remain only a pipe dream," Sen added.

Senior tax consultant Amitav Kothari who spoke at the symposium, however, lauded the government move in abolition of long term capital gain tax.

"This is a bold step by the finance minister. This is a positive news for the market," Kothari pointed out.

Speaking about tax proposal, N K Poddar noted the introduction of annual information return for income of Rs 50,000 was not feasible.

"It should be made income of Rs 50 lakh," he added.