NEW DELHI: The Centre and stock market regulator SEBI have asked states to either waive off or rationalise the stamp duty on financial transactions executed electronically, a move that could bring down the transaction costs on the various electronic exchanges in India.
This will figure at the meeting of the standing committee of state finance secretaries on Friday, a finance ministry official told ET.
Stamp duty is a form of tax that is usually levied on documents and some transactions such as buying and selling of land. “A low and uniform stamp duty is crucial for the development of a seamless financial market in the country,” the official said. Besides bringing about rationalisation and uniformity in stamp duty rates, the Centre also wants states to streamline the mechanism of collecting the levy, he added.
At present, when an investor buys or sells shares, he has to pay a stamp duty. The duty is collected by his broker, who executes the transaction on his behalf on the stock exchange and also deposits the same with the state government concerned.
The duty—levied on the total value of the transaction—varies from state to state. At present, while Maharashtra levies stamp duty at the rate of Rs 200 per Rs 1 crore, Delhi levies it at Rs 1,000 per Rs 1 crore and Kerala at Rs 5,000 per Rs 1 crore. These high duties, together with the securities transaction tax, exchange charges and brokerages, inflate the transaction cost on Indian stock exchanges to one of the highest in the world.
The variable duty structure not only comes in the way of the development of a pan-India financial market, but also encourages brokers to seek out less-costly states, leading to complications and ambiguity.
States that impose a higher duty tend to lose revenues as brokers route transactions through offices in states that have lower duty.
Moreover, there is no clear rule for the imposition of the levy. For example, if a shareholder in Assam sells a security through a broker in Delhi who is a member of a stock exchange in Mumbai, there is no clarity on when the duty should be levied and who would collect it. Currently, the most common practice is that a broker collects the duty from his client and deposits it with the state where the brokerage firm is registered. However, at times this leads to dual taxation. “We are ready to pay, but the duty should be uniform and the collection mechanism should be streamlined,” said BK Sabharwal, chairman (northern region), Association of National Stock Exchange Members of India.
Source : The Economic Times