Brokers od bothe the Bombay Stock Exchange and National Stock Exchange on Tuesday demanded a single transaction tax on securities for only foreign institutional investors and non-resident Indians and asked Finance Minister P Chidambaram to exempt domestic investors, brokers and arbitrageurs.
In a presentation to the FM, brokers said the proposed 0.15 per cent transaction tax would result in sharp decline in the volumes of trade in both securities and debt market and result in only Rs 1035 crore (Rs 10.35 billion) mop-up in tax revenues as against the Budget target of Rs 3500 crore (Rs 35 billion).
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They suggested three alternatives. First, single transaction tax for FIIs and NRIs in the place of capital gains tax and exemption from the transaction tax to all other categories of investors.
Secondly, domestic investors be given an option of only transaction tax or capital gains tax.
Thirdly, exempt debt market and day traders from the tax and impose the tax on other categories of investors including FIIs, FIs and retail investors.
In their detailed presentation, the brokers associations of BSE, NSE and other regional bourses told the FM that the effect of transaction tax was hike in cost by 65 per cent for brokers, 85 per cent for high networth individuals, 34 per cent for retail investors, 85 per cent for mutual fund and domestic institutional investors but the same cost would go up to 456 per cent for day traders, 1329 per cent for arbitrageurs, 482 per cent for investors in futures and options and a whopping 3410 per cent for debt market players.
V K Singhania of Association of NSE Members of India said the transaction tax will indirectly encourage 'dubba' or unreported trade and trigger a heavy retrenchment in the broker community and a lower tax mop-up.
