Capital market participants, including leading stock & commodity exchanges, brokers and traders, have reiterated their demand for implementing the long-pending tax reforms in the Union Budget 2021-22 in view of the impending benefits to the economy in the post-COVID recovery phase.
They have once again urged the Union Finance Minister Smt. Nirmala Sitharaman to review the Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT) applicable on capital market transactions. The industry has particularly asked for reintroduction of the tax rebate under section 88E of the Income Tax Act, which was earlier allowed on STT/CTT paid.
According to an official of National Stock Exchange (NSE), any review of STT/CTT leading to a lower tax incidence is expected to “improve market efficiency, leading to increased participation and broad-basing of equity and commodity markets.”
Highlighting the negative impact of removal of the 88E benefit on market volumes, Mr. Narindra Wadhwa, President of Commodity Participants Association of India (CPAI), said: “After the 88E benefit was removed in 2008, under which STT/CTT was treated as an expense instead of tax, there was a large fall in volumes. The 88E benefit was withdrawn because of large number of client code modifications (CCM), but corrective measures undertaken by SEBI led to CCMs becoming almost zero over the last 8 years. Despite this, the 88E benefit is yet to be restored and market volumes continue to languish with respect to the ratio between market capitalization and GDP.”
An official from the leading commodity exchange Multi-Commodity Exchange (MCX) pointed out that there was a 60% fall in volumes after CTT was implemented, but the recovery has been only 10% so far. “Though efforts have been continuously made to increase participation, removal or reduction in CTT and allowance of 88E would definitely increase the liquidity in the markets and increase hedger participation from Oil and metal companies and participants,” the MCX official added.
Insisting that “no crisis should go waste,” Mr. Lav Chaturvedi, ED&CEO of Reliance Securities said that the Coronavirus pandemic has given a unique opportunity to the government to finally initiate the Capital Market reforms that have been long-pending in the Union Budget 2021-22. “This year the government must use this opportunity to prioritise long-pending sectoral reforms to improve the economy’s health and its investment prospects,” he says.
Mr. Wadhwa added: “Growth in markets, especially commodity markets, will encourage corporates to hedge in India instead of CME & LME, save forex, increase jobs in the financial sector, enhance GST collection, decrease bid-ask and cost of collection and also make India a price setter in commodities.”
