Finmin Seeks Expert Views on Impact of STT Removal

Govt plans to stretch period for applicability of long-term capital gains tax to three years 

The Finance Ministry has sought suggestions from leading tax experts and market participants on the implications of scrapping security transaction tax (STT)--a levy on transactions done on stock exchanges. Tax consultants said the government wants to understand the impact of doing away with STT as it mulls stretching the pe riod for applicability of longterm capital gains tax from one year to three years.

STT is collected by the broker in addition to the brokerage soon after a trade is completed. A section of the market--shortterm traders and arbitrageurs--have been asking for a removal of STT because it squeezed their margins. The government in the budget of 2013-14 cut STT on equities and mutual fund units. In the last few days, top tax experts have been sounded out by the Finance Ministry on the matter. “There have been various representations to the government on various aspects of capital gains taxation, as well as slashing of STT,“ said Ketan Dalal, managing partner, west, PwC India.

STT was introduced during P Chidambaram's tenure as the finance minister in the Union Budget of 2004-05 to boost revenues from stock trades.

The government felt investors were avoiding paying taxes on gains made from stocks.

Now, as the finance ministry debates on extending the tenure for applicability of longterm capital gains, market participants are speculating that STT could be scrapped as a co unterbalance for the market.

Many tax experts and brokers believe that the government is unlikely to rock the boat as the market goes through testing times. “Given the pressure to augment revenue collection, the demand for removal of STT would depend on estimate of STT revenue loss and higher capital gains tax collection if long term is redefined to be three years,“ said Vipul Jhaveri, Managing Partner, Tax and Regulatory, Deloitte Haskins & Sells.

“However, I would think that the government may also take in to consideration the situation of the capital markets, where falling markets can adversely impact the likelihood of any capital gains arising for taxation purposes“. In the financial year ended March 31, 2015, the government collected . 6,280 crore through security ` transaction tax. “In spite of revenue considerations, given the state of the capital market currently, it seems unlikely that any adverse changes will be made,“ said Dalal.

The Economic Times, New Delhi, 26th February 2016