Chidambaram Open To Tinkering With New Transaction Tax

by Lorys Charalambous, Tax-News.com, Cyprus

14 July 2004

India’s Finance Minster Palaniappan Chidambaram has stated a willingness to review the rate at which the new tax on securities transactions is set, amid protests from traders that the charge will reduce profits.

One of the key measures in the Indian government's budget unveiled by Chidambaram last Thursday was the replacement of long-term capital gains tax on securities with a transaction tax on exchange-listed instruments, levied on the buyer at a rate of 0.15% of their value.

However, it has been reported that the move led to an immediate fall in the number of trades undertaken on the country’s bond and stock markets.

Justifying the new measure, the Finance Minister told a Federation of Indian Chambers of Commerce and Industry post-budget meeting: “We made a judgment that this complex capital gains tax regime is distorting the market and is perhaps encouraging tax avoidance”.

He added that the 0% longer term capital gains tax, 10% short term capital gains tax and 0.15% transaction tax regime was based on proposals from the stockbroking community, although he told FICCI members that “if anyone has a better set of numbers, I am willing to look at that.”

Chidambaram suggested that the transaction tax could be lowered to 0.10%, with the short term capital gains tax rate increased to 15%.

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