The new accounting year has forced arbitrage traders to shut their terminals, as the modified version of Securities Transaction Tax came into effect on Tuesday.
A minor change in the tax treatment of STT as business expense has a significant impact on the amount of tax paid. "The effective rate of STT for those who claim business income shall up by 66.66 per cent on a post tax basis should rebate on STT under section 88E be replaced by treating STT as a business expense," states a memorandum submitted to the finance ministry by the Association of NSE Members.
"From a direct tax STT has become an indirect tax, with this change in treatment. On illogical basis year on year STT is being increased," said Deena Mehta, MD, Asit C Mehta Investment Intermediates.
Traders said they are being treated unfairly vis-à-vis the foreign institutional investors who would pay no tax at all even on arbitrage income if they are registered as a permanent establishment in Mauritius. Against the direct tax rate of 33.33 per cent and an indirect tax median of 16 per cent, the rate applicable for stock trader segment becomes 50 per cent.