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Tax on securities transactions could be scrapped
February, 01st 2007

May be replaced by Goods & Services Tax
It could soon be party time on Dalal Street, as the government is considering the elimination of the securities transaction tax (STT). The catch? It could be replaced by the proposed omnibus Goods & Services Tax (GST).

This means that instead of taxing individual entities every time they transact in the equity market, the tax system will be oriented towards taxation of the value of the financial services provided. Such services can include anything from asset management to investment services.

The proposal was floated by the finance ministry-appointed Percy Mistry Committee to prepare a road map to develop Mumbai as an international financial centre.

The move is aimed at making the tax structure for the financial sector compatible with international standards. According to S Madhavan, executive director, taxation, PwC, while doing way with the transaction-based tax was welcome, the GST model also needed to be studied. He said many countries provided the financial sector exemption from GST.

But the committee is learnt to be in favour of phasing out all tax exemptions that could brand Mumbai a tax haven. Instead, it has endorsed the road map suggested by the earlier Kelkar Committee on tax reforms which said financial services be brought under GST.

Instead of taxing individual entities, the system will be oriented towards taxation of the services provided
The move is aimed at making tax structure for the financial sector compatible with global standards
Since the Mistry Committees views will require fairly large-scale changes in the present tax system, it has apparently suggested that the government set up a working group to thrash out the modalities. The GST was mooted by finance minister P Chidambaram in Budget 2006 for introduction by 2010, as a comprehensive tax for both goods and services.

Chidambaram had introdued STT in Budget 2005. In Budget 2006, the rates were hiked from 0.1% on the value of the purchase or sale of an equity share to 0.125%.

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