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Wait gets longer for lower Securities Transaction Tax
October, 13th 2011

The stock market will have to wait a little longer to see any reduction in the Securities Transaction Tax (STT).

The Capital Market Division of the Finance Ministry has called a meeting on October 17 to take a view on the proposed cut in STT.

It will take some time to arrive at a decision, a senior Finance Ministry told Business Line.

The Ministry last month said that it is seriously considering cutting or removing STT after receiving suggestions from various stock exchanges.

This step, along with a proposal to a uniform stamp duty, was being considered to boost the sagging stock market. Though the markets have recovered on positive cues from the international market, apprehensions are still there.

Sources said that there are reservations on the reduction. The Central Board of Direct Taxes (CBDT) is not in any mood to see a further reduction in revenues.

During the first six month of this fiscal, the STT collection has reached Rs 2,500 crore. The Finance Ministry has set a target of Rs 7,500 crore for the entire financial year.

There is also a debate on the mechanism to review the STT. This can be done either outside the budget or in the budget, the official said.

For taking action outside the budget, the Finance Ministry will have to issue an ordinance and bring an amendment in the winter session of Parliament. But to take this step, urgency has to be established. The other option is to wait till February 2012.

The Capital Markets Division has said that STT has never been considered as a revenue source. The tax increases transaction costs, it said. The division is of the opinion that anything that is good for the market should be done, and reviewing STT is one of the measures.

Stockbrokers say that on an average brokerage of 10 paise per Rs 100 for an institutional investor, STT constitutes of over 50 per cent in the transaction cost. STT is levied on the sale or purchase of shares, equity oriented mutual funds and futures and options in securities.

Market players are disappointed on the changing stand of the Government. STT has an affect on volumes. Any delay in reducing or removing the STT will impact volume in the short run and direction in the long run, said Mr Ashok Agarwal, Director, Globe Capital.

Mr Vijay Bhushan, Director, Bharat Bhushan Equity Traders, said that last month's announcement had given hope and now the delay will cause negativity in the market.

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