Transaction tax, shorter trading hours bog Indian market, says government committee

MUMBAI: Slashing the securities transaction tax (STT) and stamp duty on equity derivatives and extending trading time for currency futures are among the key recommendations given by an expert committee to the finance ministry ahead of the 2016 budget.

The Standing Council on International Competitiveness of the Indian Financial Sector, comprising of the National Stock Exchange Vice Chairman Ravi Narain and professor at Indira Gandhi Institute of Development Research Susan Thomas, have said that stamp duty should not be applicable to cash settled products such as index derivatives as there is no delivery of the underlying taking place.

Currently, an STT of Rs 1,700 on non-delivery and Rs 2,500 on delivery is charged on Rs 1 crore worth of traded volumes. In addition, a stamp duty of around Rs 240 both on intra-day and delivery-based trades and Rs 200 on futures and options is charged on every Rs 1 crore worth of trade. Statutory levies in the equity market form between 50-55 per cent of the total cost of trading in the equities segment in India.

However, brokers who have interacted with the finance ministry in the past few months believe the government may not make any meaningful changes in the STT as trading volumes in derivative segment has risen. The average daily turnover on NSE's futures and options (F&O) segment surged to the highest level since April 2015. Data shows that F&O segment had clocked a daily average turnover of close to Rs 3 lakh crore in January, which is around 40% higher than the previous month. This was after the Securities and Exchange Board of India hiked equity derivative contract size in index and stock derivatives.

The expert report further stated that trading time for currency derivatives is India was the shortest compared to other top global exchanges where rupee futures are traded. On the exchange platform the rupee is traded for 8 hours daily. In Singapore the rupee can be traded for 12 hours, in Dubai for 16.5 hours and in the US it can be traded for 23 hours on the CME and the ICE exchange platform. The committee report said that price discovery shifted to off-shore platforms after trading in India closes.

The report has further sighted smaller position limits, capital controls, uncertain tax policy for foreign players, high regulatory risk and margins among other issues bogging down Indian capital markets and exchange platforms compared to their global peers.