Union Budget 2020 India: Due to the high incidence of Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT), the cost of executing a transaction in India in various asset classes is from 4 to 19 times the cost of executing a comparable transaction in the United States, China, and Singapore. The DEA Permanent Council observed that the reform policy should also reduce costs related to fiscal policy issues in order to improve the competitiveness of Indian commodity derivatives.
Of the total cost of INR 17,284, INR 11,959 goes to the government and if we add the impact cost due to TWU it will increase further. No industry in particular with such a high share of public levies will be able to develop.
The cost in India is significantly higher than trading similar instruments globally resulting in poor volumes, low liquidity and high impact costs in India.
The RBI wants companies to cover the commodity risk, but in this case, the CT is a road barrier. Governments want trade to be as dynamic as that of the US, UK and Singapore, but again, TWS is a friction that hinders growth. The STT was levied instead of a zero long-term gains tax and short-term concessional tax. However, people assessed as business income still paid the full tax at the slab rate and did not get such a concession.
Therefore, from the inception of the STT in 2004, for the assessed companies, the STT they paid was considered a tax paid on their normal slab tax obligations on commercial income u / s 88E and they had to pay balance tax. However, in 2008 SEBI noticed that a small part of the members and clients undertook large changes to the client code and therefore with effect from April 1, 2008 88E was withdrawn. This led to huge double taxation of 65-85% as people first paid TWU without considering profit and loss and then income tax.
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However, through strict measures, conditions and strict sanctions, SEBI has already solved the problem of changing the code by 2012 and it is no longer relevant. However, it appears SEBI has not informed North Block of this and the resulting drop in market volumes as 88E has yet to be restored. Ironically, the 88E restoration will not only improve market volumes, but also increase STT collections; So it’s a bit strange that Fin Min hasn’t restored it yet.
In modern economic theory, taxes should be either on income or on value added, and taxes based on turnover are regressive and hamper market development. But on the other hand, STT has no leakage and no collection cost.
By suing the STT, the CTT on turnover but at least applying it to direct “income” tax obligations, the government can have the best of both worlds, namely higher collection of STT, CTT at zero collection cost and zero leakage and at the same time not hamper the growth of the market. 88E is the only way the government can have its cake and eat it too.
Narinder Wadhwa is Chairman of the Commodities Participants Association of India (CPAI) and CMD Ski Group. The opinions expressed are personal of the author.