The Hindu Business Line : Debt market stranded over transaction tax

TRADING on the debt markets came to a virtual halt today as traders decided to stay away from the market in protest against the proposed transaction tax.

However, there were stray deals worth Rs 430 crore on the NSE, as against the daily average of Rs 3,000-4,000 crore. Trading is expected to be thin until the issue is resolved, say money market dealers.

Dealers came to an unspoken consensus right from the day's open. "The mood was very dull. There were hardly any quotes available; whatever trades took place seem to be under pressure from RBI,'' said a dealer.

The money market dealers' association, FIMMDA, has written to the Reserve Bank of India asking the regulator to mediate with the Finance Ministry to abolish the turnover tax for the debt markets all together.

Mr M.S. Annigeri, CEO, FIMMDA, said: "We are requesting the Finance Ministry through the RBI to exempt debt market from this tax. Considering that the profit margin in the debt market starts from as low as one paise, the 0.15 per cent turnover tax in comparison to it appears to be very high. The dynamics of the debt market are different from that of the equity market where profit margins average at 3-4 per cent.''

The RBI is understood to be studying international experiences before making its representation to the Ministry. Interestingly, a similar tax had once been levied in Sweden only to be revoked with most traders shifting to overseas markets to circumvent the levy.

Ironically, debt market trades are neither struck through nor settled through the stock exchanges. "... These trades are merely reported on the NSE by debt market brokers. So there is no need to tax debt market deals, is our argument,'' said Mr M.S. Gopikrishnan, Senior Vice-President, IDBI Caps.

About 75-80 per cent of debt market trades are struck through brokers, who being members of the exchanges report it on the stock exchange. The remaining 20 per cent gets carried out on a one-to-one basis over the telephone. All G-Sec trades are settled by RBI's subsidiary, Clearing Corporation of India.

The proposed levy on a minimum-sized, trade of Rs 5 crore would face a tax of Rs 75,000 while the total profit of the deal may have been just about Rs 15,000-20,000 since the margins per unit are as low as three to five paise in a stable market.

Said Mr R.V. Joshi, Managing Director, Securities Trading Corporation of India Ltd, "All we want is a clarification from the Ministry stating that those transactions traded and settled outside the stock exchanges irrespective of whether they are done through brokers or on a one-on-one basis are exempt from the turnover tax.''

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