The Hindu Business Line : North Block irked over protests

ON THE WARPATH: Equity traders protesting outside the Bombay Stock Exchange on Friday againstthe transaction tax announced by the Finance Minister, Mr P. Chidambaram, in the Budget proposals. - Paul Noronha

New Delhi , July 9

THE phone lines between the Finance Ministry and the Securities Exchange Board of India (SEBI) were busy on Friday as an anxious North Block watched trading deals refusing to take off in the debt market.

Finance Ministry officials kept a constant eye on the market developments even as SEBI tried its best to ensure the commencement of action in the dealing rooms. The Finance Ministry on its part was also egging banks and brokers to commence trading. "We are in touch with banks and traders," officials said.

The inaction, widely being perceived to have been engineered by brokers, was on account of apprehensions over the implications of the 0.15 per cent securities transaction tax that has been announced in the Union Budget in place of long-term capital gains tax that has been abolished.

"It is an emotional and irrational reaction from the broking community," a senior Finance Ministry official said who felt that the debt market brokers were operating as a cartel to signal their unhappiness. "It is definitely a cartel that is engineering this. The debt market trading is controlled by a handful of brokers who come under the banner of a particular association," he said.

Officials questioned the locus standi of the brokers in leading the protest on the imposition of the transaction tax. "I don't understand why the brokers are agitating over the issue? What is their problem? After all, they would not be paying the transaction tax when it comes into play. It would be the buyer who would be paying the tax," the official said.

The timing of the protest was questioned too. "Why are they reacting like this today? It would be quite some time before the tax comes into operation," officials said. They pointed out first the Finance Bill has to be passed by Parliament and the Presidential assent acquired for it, the Finance Ministry would have to issue a notification to make the tax operational. Officials, however, admitted that the securities transaction tax was not uniformly applicable to all segments of trading in the debt market with the Reserve Bank of India's Negotiated Dealing System (NDS) platform and trading through the Clearing Corporation of India being kept out of of this tax.

"Transactions that are conducted directly on NDS and CCIL do not come under the purview of the tax. There is an issue there," officials said.

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