New Delhi, July 21
Acceding to the demands of the capital market intermediaries Finance Minister P. Chidambaram today announced a differential structure of transaction tax, slashing it to 0.015 per cent from the current level of 0.15 per cent for day traders and arbitrageurs while granting exemption to all bonds and units of mutual funds other than equity-oriented ones.
Contrary to expectations, the Finance Minister, however, did not roll back the proposed hike in the FDI cap in the telecom, insurance and civil aviation sector even as he sought to play down the portrayed differences between the government and Left parties by saying that “it was a pleasure to work with friends from the Left”.
The House passed by voice vote the Demands for Grants to meet government expenditure for August-September 2004-05.
Making the announcements in the Lok Sabha today while replying to the debate on the General Budget 2004-05, Mr Chidambaram said the Securities Transaction Tax
(STT) was a “neat, efficient and easy to administer tax and it has a great advantage of virtually eliminating tax avoidance”.
“Hence STT will stay”, he said, quashing demands of the stock broking community which had been demanding a complete abolition of the tax as announced in the Finance Minister’s Budget speech.
Under the amended structure, for delivery-based trade in equity, the rate is being maintained at 0.15 per cent and is being proposed to “split the levy of the tax equally between the buyer and seller”.
For unit holders holding units in equity-oriented mutual funds, the Finance Minister said that “units” would be treated as “securities” and benefit of the new capital gains tax regime extended to such unit holders.
However, like any other equities traded on the stock exchange, they would now have to pay a transaction tax of 0.15 per cent.
For those capital market
intermediaries who are now paying income tax on business profits, the Finance Minister has proposed a rate of 0.015 per cent and will be allowed to take credit for transaction tax against business tax on profits.
For derivative traders (futures and options), the rate will be 0.01 per cent. Buying and selling bonds, including government bonds, would be completely exempt from the tax.
“Where STT is attracted, long-term capital gains tax will be nil, while short-term capital gains tax will be 10 per cent. Where STT is not attracted or exempted, the normal capital gains tax regime will apply”, Mr Chidambaram said.
On the politically sensitive issue of increasing the ceiling of FDI in the telecom, insurance and civil aviation sectors, Mr Chidamabaram said there was no fundamental difference between the government and the Left parties on FDI.
“People say that I am under pressure from Left friends. But I have to say that I have a great pleasure working with them. I will listen to them and I will convince them. Eventually, the government has to take decisions in the best interest of the country...the quarrel is in which sector and what quantum”, he said.
Reiterating the government’s commitment to bring in place a better investment paradigm, the Finance Minister said, “A signal must go that India is open to investment”.
“We have to learn lessons from countries like China and others. If we don’t observe these lessons, the gap between China and India will widen and grow”, he said.
The government’s decision to set up an Investment Commission underlined the commitment to bring about more investment — domestic, foreign and public.
He termed the National Common Minimum Programme (NCMP) as the roadmap of the UPA government and said agriculture would remain at the centre-stage of the government over the next five years.
“If we can raise the credit from Rs 80,000 crore from this year to Rs 1,00,500 crore, then there would be a
great increase in production”, he said.
Mr Chidambaram said programmes such as the Accelerated Irrigation programme and the watershed programmes were specifically structured to bring about better infrastructure in water supply and irrigation in rural areas.
While a cash component of the Food for Work Programme to Rs 3,712 crore has been earmarked in this budget, within the next two weeks the Planning Commission would make additional allocations for this programme. In the event of a drought, a separate foodgrains component will be added.
He said that the pilot project for restoration of water bodies would be extended to larger number of districts, depending on the success of the project. Laying particular emphasis on fiscal consolidation, he said the Fiscal Responsibility and Budget Management Bill had been notified with well-defined time-bound targets for revenue and fiscal deficits.
