Now it’s the government’s turn to cash in on the stock market boom. The finance ministry is considering raising the rate at which securities transaction tax (STT) is levied. One of the options is to increase the ceiling rate to 0.5% of the value of the taxable securities transactions. At present, it is levied at rates of 0.017- 0.25% on every transaction on domestic bourses. 

Sources said North Block is likely to take a final decision on the matter this month. Finance minister P Chidambaram could move an appropriate amendment to the Finance Act, 2007, in Parliament in the current winter session, they added. Waiting for Budget 2008-09 to carry out the STT rejig would mean taking a call on how the Markets would behave over the next few months, as the Finance Bill is passed
by Parliament only in May.

The bellwether Sensex of the BSE has gained over 4,000 points this year. This surge in stock Markets has already earned the revenue department an impressive 69% rise in STT collections to Rs 4,924 crore up to November 15, compared with Rs 2,908 crore in the same period last fiscal.

STT was introduced in 2004-05, netting the exchequer Rs 589 crore, which rose to Rs 2,559 crore in 2005-06.

The move would not hurt foreign institutional investors or other major players in the market, as they would pass on the higher levy to their clients. The government has also been debating the levy of a turnover tax but sources said this could hurt market sentiments.

A rise in STT would also be in sync with the objective of increasing the tax base without burdening lower- and middle-income groups. An increase in STT is also likely to pass muster in Parliament at a time when commitments on the government to increase social sector spending is mounting rapidly. The higher spend has already resulted in the finance ministry missing its mid-year FRBM mark.

The ministry has been considering tweaking the norms for STT after the Markets began their dramatic rise. The department of economic affairs had proposed raising the STT rate on the premium portion of the option and waiving the tax on the strike price.

STT is a tax levied at different rates on securities such as equity shares, derivatives and units traded in recognised stock exchanges in the country. However, the sale and purchase of bonds are totally exempt.

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