Securities tax kitty breaks 9-month fall

NEW DELHI: Reflecting the buoyancy in stock markets and increased investor interest in shares, the government���s securities transaction tax (STT) collections returned to positive territory in July after nine months. Tax analysts expect collections to improve further in the second half of the current fiscal.

With a day to go, STT collections in July were already up a modest 3.7%. The collection for April-July 2009 stood at Rs 2,242.8 crore. This compares favourably with the Rs 5,408 crore collected in 2008-09, the worst year for STT collections since the tax was introduced in 2004. In 2008-09, STT collections were down 37%, after having grown 81.3% and 84.8% in the financial years before that.

As the name suggests, STT is a turnover tax levied on the total consideration. In the case share purchase transaction is settled through delivery (delivery-based transaction) STT is levied at 0.125%. However, transactions in derivatives trading attract a lower STT of around 0.017%.

The bounceback in STT collections is a clear indication that the stock market rally from the post-financial crisis March 2009 lows has been fairly broadbased with large volumes. Indeed, the average daily turnover on the National Stock Exchange (NSE) stood at Rs 18,240 crore in July, much higher than in the post-crisis months when it hovered around Rs 10,000 crore a day.

The STT collections are expected to improve as the economy recovers and stock markets gather momentum. Vikas Vasal, executive director, KPMG says: In the last nine months, particularly last quarter of 2008 and first quarter of 2009, when global sentiment was down and domestic investor was also keeping away from the stock markets due to issues such as confidence and liquidity crisis, there were cumulatively lesser number of transactions.

���In the last quarter, particularly after the elections results and various policy announcements by the government, investors have returned. And, since STT is a transaction based tax, more transactions mean more tax for the government. With confidence returning among investors, last two quarters of the current financial year should also fare well for the government���s STT collections��� he added