Buyers to pay 0.15% turnover tax on all share transactions

Buyers to pay 0.15% turnover tax on all share transactions

This is a REAL SHOCKER for all market Players!!!

The FM said a transaction tax of 0.15% would replace the current long-term capital gains tax. On the other hand, the short-term capital gains tax would henceforth be charged at a flat 10%. Currently, short-term capital gains tax is fixed at 10%, 20%, and 30% based on the tax bracket in which the investor lies.

Does this mean that short term traders / day traders have to pay this tax???

Anyway the market was expecting a lower transaction tax of between 0.05% to 0.10%. It was also expected that transaction tax would replace both long-term and short-term capital gains. While FM abolished long-term capital gains tax, it did not abolish short-term capital gains tax.

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Ministry willing to revisit transaction tax, FM to meet brokers.

The finance ministry is willing to revisit the transaction tax issue in its entirety. Finance Minister P Chidambaram has called a meeting of brokers associations, the Bond Dealers Association, primary dealers and foreign institutional investors (FIIs) on Monday and Tuesday in New Delhi to listen to their grouse and consider their suggestions.

According to finance ministry sources, the main issue pertains to trading in government securities where off-market trades under the Negotiated Dealing System are legal, unlike in the equities segment where off-market transactions are illegal. This creates a distortion and needs to be addressed, a source said.

NDS accounts for almost 35 per cent of the bond market trading, said the source, adding that these trades were spared from the 0.15 per cent transaction tax.

However, bond deals in the wholesale debt market in the NSE and the BSE, which account for 65 per cent of the total trade, are subject to the 0.15 per cent tax on transactions.

The ministry is aware that the margins even in long-term government securities are low and it also acknowledged that the transaction tax would hit the short-term bond deals.

An option could be to restrict the transaction tax to the equities market and let the present system continue for the debt market, the sources said.

Another option, the sources said, was to have two different transaction tax rates, the 0.15 per cent tax per transaction for the equity segment and a much lower one for the debt segment.

Senior finance ministry officials had to intervene today and call up bankers and primary dealers when they saw that there was nil trading in the wholesale debt market (WDM) segment of the National Stock Exchange and the Bombay Stock Exchange, as well as the NDS till about 2 pm.

The sources said that officials told the brokers and the dealers over the telephone that the Finance Bill 2004 had not yet been passed by Parliament.

This must have given all the brokers and dealers a ray of hope, said a source. But despite serious convincing by North Block, trading remained negligible during the day closing with zero transactions in the WDM and a meagre Rs 105 crore worth transactions in the NDS, where the 0.15 per cent transaction tax is not applicable.

Primary dealers, who account for a third of the total trading in the g-sec segment, said that trading was unlikely to pick up unless the government clarified on the transaction tax issue.

A top primary dealer said they operated on a spread which was as low as 2-5 paise. With the 0.15 per cent transaction tax, PDs fear the bid-offer spread to widen which would make the markets illiquid, he added.
Stocks recover on SEBI reassurance

STOCK prices recovered as sentiment improved today after the Securities and Exchange Board of India (SEBI) reassured investors that the transaction tax proposed by the Finance Minister will be applicable only after the Finance Bill is passed.

Major indices bounced back from early lows; the BSE Sensex closing at 4945.48, up 101.64 points or 2.1 per cent from its previous close. It had dipped to as low as 4766 in the morning. The 50-share S&P CNX Nifty of the NSE closed at 1553.20, which was 2.31 per cent above its previous close of 1518.15.

A dealer with a private bank said buyers returned to major stock counters in afternoon trade. He said several arbitrage positions were being squared up. Some buying by foreign institutional investors as well as domestic mutual funds was also noticed.

FIIs and domestic funds had bought equities worth Rs 147 crore and Rs 77 crore respectively on Thursday.

"It could have been a relief rally today. However, even if the Minister gives some relief on transaction tax, this rally is unlikely to give further momentum, as then global factors such as rising oil prices would come into play. The markets will have to be patient," said Mr Ajit Surana, Managing Director of Dimensional Securities.

Strong buying was seen today in auto, textile, telecom and cement stocks. The BSE's PSU index rose over 2 per cent to 3024 and Bankex rose 1.9 per cent to 2395.

Earlier, stockbrokers met the SEBI Chairman, Mr G.N. Bajpai, seeking clarity on transaction tax. Mr Bajpai assured them that it will be applicable only prospectively after the Finance Bill is passed. A SEBI release said the Minister has invited brokers' representatives to Delhi on Tuesday to hear their point of view.

The SEBI Chairman is meeting the Finance Minister on Monday and he is expected to raise the issue with him then, a top SEBI source said.

This tax is going to suck out the liquidity from the Indian Stock Markets.

Re: Good News for Investors

Brokers to absorb tax on service, transaction

NEW DELHI: The brokerage industry is planning to absorb the 2% hike in service tax and the controversial transaction tax of 0.15% on purchase of stocks, as and when it is imposed. So, investors may not have to take a hit on the fresh charges proposed in the Budget, as it will be paid by brokers from their business margins.

Brokerage charges are unlikely to rise above the existing rates of 0.4-0.5%, said top brokers. Large investors, especially foreign institutional investors (FIIs), already pay high brokerage rates of 0.4% for delivery-based transactions. These investors have refused to bear the additional costs arising out of the new levies, which will force brokers to shell out the fresh charges from their margins.

Heavy weights such as the large domestic financial institutions including UTI Mutual Fund, LIC MF and other private mutual funds, however, may face an escalation in their existing transaction costs as they pay lower than average brokerage fees of about 0.2%.

The additional outgo on account of a transaction tax of 15 basis points (bps), amounts to 75% of the existing charges and it cant be borne by the brokers. The hike will have to be passed on to clients who pay lower brokerage charges, said the owner of a brokerage house.

These investors may have to bear the burden only partially, as brokers will find it hard to raise the existing rates to more than 0.35% for the bigger clients. The turnover tax cost will eventually have to be split with the larger clients who always have an edge in all negotiations, he added.

The brokerage industry is an extremely competitive sector with a wide variety of choices available for clients. Our business thrives on higher volumes and will suffer if the new proposals eat into the trading turnover.

We have no choice but to soften the blow to our clients, said a top Mumbai broker. The brokerage charges paid by investors are inclusive of a commission paid to the brokers, stamp duties, service tax and other charges levied by the stock exchanges. Costs tend to be higher for delivery transactions.

Some non-private sector brokerage houses such as UTI Securities, however, charge higher than the ruling market rates and always pass on all fresh levies to investors. We had passed on the additional expenses when the service tax rate was jacked up to 8% from 5% and we are likely to pass on the latest charges as proposed in the Budget as well, a source at UTI Securities said.
Transaction tax - who all will be hurt?

Looks like the transaction tax will fire back on the government itself!

Transaction tax - who all will be hurt?
Poornima Mohandas

Mumbai , July 10

WHO will bear the brunt of the transaction tax in the Indian debt markets in case it gets imposed? Market players, brokers, corporates and the Government itself, say experts.

The ripples spread far and wide; this is how it will work. The transaction tax will mean that each trade will cost over Rs 75,000 for a minimum lot size of Rs 5 crore. This will prompt traders to increase their spread.

With wider spreads, G-sec prices will fall and yields will rise. Another reason for fall in prices will be the illiquidity premium, which will come up since all players would deal on a one-to-one basis and prefer to avoid the broker. The broker would be avoided since he is the one who reports the transaction to the stock exchange, and, thereby making it under the turnover tax umbrella. With the broker gone, trading volumes are expected to drop.

"When the Government comes to borrow it will have to pay a higher yield taking into consideration the liquidity risk. The Government's efforts will then backfire," said a debt market analyst, who did not wish to be named.

"All the benchmark interest rates will move up once G-sec yields rise and so will the borrowing cost for corporates," said Mr S. Ananthnarayan, Vice-President, Kotak Mahindra Capital Co Ltd.

At present, the debt broking community in India feels victimised. "If this tax is imposed the broker will be eliminated. The broking community, which consists of 1,500 to 2,000 people, are in danger of losing their jobs. Brokers had facilitated trades worth Rs 1,00,000 crore in the financial 2004," said Mr C.V. Krishna, Dealer, I-Caps, a debt market broker.

Market players and brokers on Saturday held a meeting in the city before their representations are made to the Finance Ministry on Monday.

"Along with the broker will go fine price discovery because how many players can a dealer talk to before making a deal. The brokers today give us quotes from several players, and, thereby ensure fine pricing," said a dealer.

Even in the developed countries such as the US, the debt market is mostly telephonic with the broker being an integral part of it.
Transaction tax - who all will be hurt?
Volumes slump as traders go on warpath

Mutual funds & FII's develop coldfeet over long term effect of Transaction Tax

Volumes slump as traders go on warpath


Mumbai: Day-traders, arbitrageurs and jobbers went on the warpath on Monday, cutting down their trading activity to bring the combined turnover on the stock exchanges to a one-year low.

After traders cold-shouldered the market, the combined turnover on the BSE and NSE fell to a little over Rs 3,900 crore, the lowest in the last one year, compared to the average daily trading volumes of Rs 7,100 crore. In the derivatives segment of the NSE, too, the turnover, at Rs 4,268 crore, was the lowest in nearly a year, compared to daily average volumes of Rs 9,600 crore.

The traders have threatened to intensify their opposition to P Chidambarams turnover tax of 0.15% by going on a one-day strike on Tuesday. Market players said that could bring down the turnover to abysmally low levels.

With little to cheer in the market on Monday, the BSE Sensex ended flat at 4,945 points compared to Fridays close of 4,946. Intra-day, the index moved in a 51-point band between 4,917 and 4,968, in sharp contrast to the 200-pointplus range it traversed in the two days following the budget.

City parliamentarians are also joining the issue. Rajya Sabha member Murli Deora said he would lead a delegation of brokers on Tuesday to request the prime minister and the finance minister to modify the transaction tax proposal. According to Mr Deora, the tax rate is too high and moreover, it should be imposed only on delivery-based equity transactions, not on derivatives and bond market transactions.

The traders lobby is getting support from big institutional and foreign brokerage houses because a significant dip in trading volumes due to the tax could potentially hurt all market players. The chief of a foreign brokerage, for instance, wants the rate cut to 0.05% or 0.10% and applicable only to delivery-based transactions.

In a hurriedly called meeting in the city on Monday, day-traders, arbitrageurs and jobbers proposed to form the Association of Stock Market Traders (ASMT) to oppose the turnover tax in an organised manner. More than 1,500 traders reportedly attended the meeting and the association is expected to notch up 5,000 members by the end of this week. Apart from making representations to the finance minister on the transaction tax issue, ASMT also intends to approach various political parties and leaders for a roll-back of the tax.
Turnover tax solution emerges after meet

Is it going to be a win-win situation for all??

Turnover tax solution emerges after meet

New Delhi: A solution to the transaction tax row appeared to be in sight after a one-hour meeting between representatives of stockbrokers and finance minister P Chidambaram here on Tuesday. SEBI chief G N Bajpai was also present.

According to official sources, the emerging solution could take shape along the following linesthe transaction tax of 0.15% on the purchase of shares would stay, but the market intermediaries including brokers, jobbers, day-traders and arbitrageurs would not be covered. They would be taxed on the basis of their business income under the pre-budget system.

The pre-budget regime of capital gains tax would continue to apply, but it would be enforced more vigorously to check revenue leakage.

Market intermediaries generally do not stand to benefit from the abolition of the long-term capital gains tax and the reduction of short-term capital gains tax to a uniform rate of 10%. The transaction tax, therefore, comes as an additional burden for them on top of the corporate tax they are liable to pay. In the case of bonds, transactions both through the stock exchange and the negotiated dealing system (NDS) would be treated at par as far as the transaction tax goes.

FinMin to hear banks, bond market dealers

New Delhi: With the row on transaction tax set to be resolved, it is understood that in the case of bonds, transactions both through the stock exchange and the negotiated dealing system (NDS) would be treated at par as far as the transaction tax goes. Since the bulk of the bond transactions are done through the NDS and these transactions are in any case proposed to be kept out of the transaction tax net, it is possible that a small part of the bond transactions which are done through the stock exchanges would also get a waiver. Alternatively, all bond transactions, regardless of the trading platform, would be brought under the transaction tax, which would be levied at a lower rate of 0.05-01%.

The finance ministry would take a more concrete view with regard to the tax treatment of bond transactions only after hearing from the key playersbanks and bond market dealersin the next few days. The Reserve Bank of India, which had assured the bond market players that it would help find a solution, has already apprised the finance ministry of their difficulties.

It is being argued that although the proposed transaction tax is not on the trade margin but is on the purchase of the bond and, therefore, is to be levied on the value of the bond, the tax at 0.15% is out of line with the very low margins at which bonds are traded. The tax could dry up speculative trade in bonds and thereby, reduce liquidity in the market. The finance minister will soon meet representatives of banks and bond dealers to listen to their difficulties.

The delegation of stockbrokers apprised the finance minister about the difficulties being faced by different categories of market players on account of the proposed transaction tax and urged him to evolve a solution keeping in view the varying tax profiles of domestic investors, FIIs, NRIs and market intermediaries, including brokers, day traders and arbitrageurs.

We are confident that the finance minister will take our views seriously and consider differential rates for different categories of market players, former BSE president Deena Mehta said.

We have got a positive feeling. As this message goes down that the finance minister is looking into our difficulties, I am confident that the agitation and protest by some section of marketmen will soon be over and the market volume will get back to normal as the problems are redressed, said V V K Prasad, alternative president of the NSE dealers association.

Mehta made it clear that the delegation had not sought the withdrawal of transaction tax. In fact, she said the new system of transaction tax with the abolition of the long-term capital gains tax and the lowering of shortterm capital gains to 10% would benefit investors, who form the overwhelming majority of the estimated 3.5 crore people linked to the capital market.


Active Member
In the recently held investors camp, one gentleman tried to explain how the transaction tax could be harmful to lakhs of traders. Chidambaram cut him short by stating that there were not lakhs but a few thousand of such people. Wonder what the truth is.

One speaker, Mr Ramesh dhamani also stated that while it is true that operators provided liquidity to the market, they did no only in the first 20 stocks and therefore there was no justification for them to protest.

From the way Chidambram was reacting to turnover tax queries, I am afraid, it is here to stay.


Super Moderator
The day traders or jobbers play a vital role in our markets by performing the job of market makers.

A "market maker" is a firm or individual that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price.

You'll most often hear about market makers in the context of the Nasdaq or other "over the counter" (OTC) markets. Market makers that stand ready to buy and sell stocks listed on an exchange, such as the New York Stock Exchange, are called "third market makers." Many OTC stocks have more than one market-maker.

Market-makers generally must be ready to buy and sell any quantity of shares of a stock they make a market in. As a result, any order small or large has to be filled in by market makers.
Considering the job they do of providing liquidity to our markets the FM should consider their case.

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