Budget 2020: Equity and commodities brokers submit key issues for consideration

Equity and commodities brokers have submitted their key issues for consideration for the forthcoming budget. Brokers have sought the reduction of the Securities Transaction Tax (STT) and the Commodity Transaction Tax (CTT), and the withdrawal of the Dividend Distribution Tax (DDT) and submit strategy on the name of the "National Development Mission”.

A source in a broking association told Moneycontrol, "We are of the view that, for enhanced GDP growth, we will need to incentivize and encourage equity Investment. Our submission covers issues which have a large impact on stock market trading like, reintroduction of rebate under erstwhile Section 88E for STT and CTT paid. Reduction in the rate of STT to tackle increased transaction cost, withdrawal of dividend distribution tax and restoring exemption of long term capital gain tax in listed shares".

In their proposal, ‘Reintroduction of Rebate Under erstwhile Section 88E for STT and CTT paid and reduction in the rate of STT’, they have mentioned that STT and CTT have remained high while there has been a withdrawal of tax rebate under Section 88E and introduction of GST without subsuming of statutory levies applicable to exchange transactions.

This has led to an increase in the cost of transactions. As per an analysis by the World Bank the turnover ratio of Indian stock market has fallen by 43 percent from 101 in 2004 to 58 in 2018, the proposal says.

The turnover ratio, which is a universally-accepted parameter gauging trading volumes, is the total value of shares traded in a specific period divided by the average market capitalization of that period. This is largely on account of STT.

Associations mentioned in their proposal, "We are of the view that reintroduction of Section 88E under Income Tax Act and reduction in STT is required to give the desired fillip to the volumes in the market which in turn will increase government revenue".

The  second major demand is the withdrawal of DDT which was imposed in the last budget.

As per their submission, "The present form of adversarial taxation on dividend of around 15% results into double/triple taxation of corporate earnings. The tax on the dividend should be in the form of equalization to balance difference between corporate and highest rate of personal tax. Hence, it is recommended that Dividend Distribution Tax be withdrawn and the tax should be levied @10% on the recipient. This tax may, for ease of collection, be deducted by the corporate as TDS".

Brokers lauded restore exemptions of the long-term capital gain tax in listed shares. "Finance Act 2018 reintroduced taxation of long-term capital gains (LTCG) arising on transfer of equity shares of company, units of equity oriented mutual funds and units of business trust ('specified capital asset'). The amendment has withdrawn the exemption granted under section 10(38) of Income-tax Act, 1961 ('ITA') and introduced concessional 10% tax (plus applicable surcharge and Cess) on LTCG exceeding Rs.1 lakh. Further, all gains arising on specified capital asset up to 31 January 2018 have been grandfathered".

Brokers said in their proposals that the reintroduction of LTCG led to strong negative sentiment regarding equity investment and there was a sharp fall in the prices of equity shares. Even after a period of 22 months the midcap index is lower by 11 percent and small cap index is lower down by a huge 31 percent while, in spite of a lifetime high, the large cap index has gained by merely 7 percent over the prices on January 31, 2018. The actual collection of LTCG on listed shares would only be marginal while investments in equity have sharply declined.

However, the long-term capital gain tenure increased from one year to three years as this method has been used for tax evasion.

The government may hear requests of brokers in this budget. Since the government wants to make market investor-friendly and make India a country for investment destination, it wants to do anything which boosts up the economy of the country.