Cut in STT will be relief to market players: Deena Mehta

The finance ministry is mulling a proposal to do away with or significantly water down the securities transaction tax (STT), a levy that fetches the government over Rs 7,000 crore a year.

According to Deena Mehta, managing director of Asit C Mehta Investments, the government needs to act to improve volumes and market sentiment. STT is disliked by investors as it adds to the cost of buying and selling shares in the country.
"The cut in STT will come as a relief to market participants," she felt.
The tax was introduced in the 2004 budget by then finance minister P Chidambaram and over the years, the rate of this transaction tax has come down from 0.15% levied initially. Currently, a 0.125% tax is levied on both buyers and sellers in case of delivery-based trades. In the case of day trades, the levy is 0.025% on the seller only.
Mehta feels there is a strong case for completely abolishing STT. "The transaction costs need to be as low as possible," she stated. Here is the verbatim transcript of her interview. Also watch the accompanying video. Q: When might it come through? Should we expect it only in the Union Budget? Do you see any possible cuts in STT or stamp duty structures?
A: Someone has come up with a magical date of October 26, which is the rumour floating in the market. If it happens on that day, there is a special ordinance which the government would need to pass.
I am not very sure if the government would take so much trouble for an issue like STT and pass an ordinance. If it does pass, it would prove that the government is worried about the markets.
The issue is very high on the list as far as the brokers are concerned. If we count a brokerage of above Rs 1,000-3,000 crore, the day trading of cash market is as high as Rs 3,100 which includes STT, stamp duty and exchange charges.
The cost range is from 75% to 50% of the transaction charge that any entity pays in the cash market. Similar is with the F&O market, where the FIIs are very active.
It has a very high cost. Any relief in this cost would provide a big impetus to the people because a lot of money has been going away to the government and there is no incentive for people to take short-term view on this market. Q: The recommendation had been to remove STT completely? How much of a scale down can we see if the government looks at a cut?
A: We started with Rs 1,500 levy and slowly it went up to Rs 2,500 levy. There was almost 75% increase successively across the budgets. It needs to be abolished completely.
Over a period of time, each of the governments have felt that the Tobin tax in UK and other countries should not be levied. Most of the government, all over the world, have gone back on levy of this tax.
The world practice has been to do away with this tax. For easy entry and exit into the markets, the transaction costs need to be as low as possible.
Whatever profits are gained, they would be taxed by the government. Having done that, there shouldn