Stockbrokers seek status quo on long-term gains

The Association of National Stock Exchange Members (Anmi), the body of brokers on the bourse, has opposed a recently aired recommendation to remove the exemption on long-term capital gains (LTCG) tax. Anmi representatives met the chairman of the Central Board of Direct Taxes to urge no change in the tax structure for the capital markets.

“Doing away of the LTCG benefit will have a major impact on institutional investors and impact trading volumes significantly,” said K Suresh, president of Anmi.

Both the BSE and the National Stock Exchange, have recommended an end to the LTCG tax exemption, which took effect from 2005. BSE has said the exemption causes a loss of ~49,000 crore annually to the exchequer; both exchanges say the rebate is being misused to launder undisclosed wealth.

LTCG are profits on sale of shares on a stock exchange platform after a holding period of at least a year. Short-term capital gains are profits on sale of shares held for less than 12 months and these are taxed at a flat 15 per cent.

Talk on removal of LTCG tax benefits have gained momentum after the government named thousands of companies or penny stocks as possibly misusing the stock exchange platform to evade tax. In August, the corporate affairs ministry identified 331 suspected shell firms as allegedly making illicit gains under the guise of tax benefits. The income-tax department began probing 2,000odd new cases in this regard.

Some suggest the government put a threshold limit for availing of the benefits. It could also raise the holding period to two or three years, from one year at present.

Among other issues, Anmi also wants some rebate on Securities Transaction Tax (STT). “STT has impacted volumes and revenue generation, and increases the cost of transaction for clients,” said Suresh. Anmi notes that inspite a fivefold rise in market capitalisation, STT collection remains muted. According to it, the government collected ~8,358 crore from STT in 2015-16, from ~7,350 in FY15.

The brokers body has suggested reintroduction of Section 88E for a rebate on STT paid. Anmi says its absence has meant a migration of volumes to the Singapore exchnage. Also, as profit is taxed, it says, dividend distribution tax should be abolished.