Finance minister Pranab Mukherjee is likely to slash the securities transaction tax (STT), in a move that is likely to boost investor sentiments. The government is, however, unlikely to impose the commodity transaction tax (CTT) on commodity futures and options.
STT, first introduced in 2004, is imposed on transactions in equity-related instruments including shares and derivatives. It is payable equally by the buyer and the seller at 0.125% of the transaction value of transactions.
The finance ministry is actively considering reducing STT by 50% to drive equity volumes, said a government source on the condition of anonymity.
A complete withdrawal of STT is, however, ruled out.
“A cut in STT will have a significant and positive impact on investor sentiments,” the official said.
The government is also unlikely to re-introduce the CTT. Being hedging platforms, commodity derivatives are similar to currency and interest rate derivatives.
“A high transaction cost, resulting from CTT, would diminish economic utility of this market, making risk management a costly proposition for stakeholders,” an official said.
Though transaction taxes on commodity derivatives trading was proposed in 2008-09, the proposal was reversed subsequently, with the argument that a tax on transaction on the fledgling market will be detrimental.
“There are some arguments that favour extending STT across all assets classes for establishing a level-playing field across stock and commodity markets,” the official said.