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May impact trading volume: market players

Our Bureau

Coimbatore , July 8

THE Finance Minister could have discussed the proposal to introduce `transaction tax' on the securities purchased in the capital market with the capital market stakeholders for smoother acceptance of the plan, according to a capital market source here.

There are also fears that the proposal would push up transaction cost to the buyers, which may lead to lower trading volume.

Mr D. Balasundaram, former President, Coimbatore Stock Exchange (CSX), told Business Line that it would have been better if the idea of transaction tax had been discussed widely among the stakeholders of the capital market, and the proposal could have been formulated on the basis feedback obtained.

While announcing the 0.15 per cent turnover tax on the securities bought in the capital market, the Minister announced that the long-term capital gains tax was being abolished, whereas, the short-term capital gains tax was being reduced to 10 per cent.

He said the brokers do not know, at the time of executing an order, as to whether the buyer intends to hold it for long term or would he sell it within a year in which case he would have to pay transaction tax and short-term capital gains tax, if there were any gains. This would force the brokers to collect the transaction tax upfront, along with other charges such as brokerage and service tax, and remit it to the stock exchanges, which have been entrusted with the task of collecting it and paying it to the IT department. He said the share brokers do not have the mechanism to match the purchase and sale to know whether it was short-term or long-term holding to decide the applicable tax. Mr K. Annamalai, another former President of the CSX, felt that while the Government would be the largest beneficiary of the proposal, the small investors might keep away from the market.

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