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Securities Transaction Tax collection dips as volumes plunge
November, 24th 2011

In a reflection of the poor sentiment prevailing in the stock market, collection of Securities Transaction Tax (STT) has dropped considerably to 3,500 crore between April 1 and November 20, from 4,500 crore in the year-ago period. The 22% fall is largely due to the slide in share transaction volumes, said an income-tax official.

The stock market turnover during the April 1-November 22 period has come down to 3,148,674 crore from 4,328,488 crore during the same period last fiscal. The stock market continues to be volatile due to global uncertainties and local factors like high inflation along with a bloated budget deficit.

The I-T department's projection for STT is about 7,500 crore this year compared to 7,000 crore last fiscal. STT is a part of the all-India direct tax collection which is projected to be 5.85 lakh crore for the current fiscal. I-T offcials said that it would be difficult to meet the target this fiscal unless the market sentiment changes dramatically in the remaining months of the financial year.

Collection of STT, ever since its inception six years ago, has been rising at a rate of 30-35% every year, except in 2008 when the market went into a tailspin and growth suffered as large US banks failed. STT was introduced in 2004-05 on all securities transaction at the rate of 0.125%. Both buyers as well as sellers of stocks have to pay the tax.

The object was to offset the revenue shortfall arising from the withdrawal of long-term capital gains tax and the reduction of tax on short-term capital gains to 10% from 30%. The tax did not go down well with brokers and investors.

While high STT figures are considered a sign of buoyancy in the market, a lower-than-expected STT collection is viewed as a reflection of poor market sentiment.

The Direct Taxes Code ( DTC), proposed to be introduced next fiscal, envisages a tax structure without STT. While the objective is aimed at making the regime more investor-friendly, the income-tax department finds it easier to administer STT. The tax is automatically paid as and when a transaction is carried out through the stock market.

Therefore, most I-T officials are in favour of retaining STT. According to them, it would be unwise to remove STT as the market is expected to bounce back in the long run.

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