A bad tax needs the axe

Mysteriously there is no entry in the Union Budget for transaction taxes. There is no estimate of what was collected as the Securities Trans...

Mysteriously there is no entry in the Union Budget for transaction taxes. There is no estimate of what was collected as the Securities Transaction Tax STT last year. There is no estimate of what is estimated to be collected as the STT or the Banking Transactions Tax BTT this year. Transaction taxes are turning out to be Finance Minister Chidambaram8217;s pet indulgence. The debate on Budget 8217;05 has got hijacked by this one issue. Last year it was the STT. This year it is the BTT. It is even being suggested that the FM has made the proposal for the BTT to give the media one single point to focus upon. The tax is so incredibly bad, the rationale for it so poor, that the media cannot but debate it. One wonders which transactions will be taxed next year. It could be cheque transactions or credit card transactions!

About the STT, the first question is how much did the Central government collect as the STT. The figure is nowhere to be found in the Budget. It is not to be seen in the yellow coloured 8216;Receipts Budget 2005-068217;, which gives details of all the tax and other receipts of the Central government. If it is included in some other tax, such as income tax or in excise, there is no entry to show this. Last July, an STT of 0.15 per cent on buyers of securities traded in the stock market was proposed. It was indicated that the transaction tax was being imposed to compensate for the loss of revenue arising out of the removal of the long term capital gains tax and the reduction in the rate of the short term capital gains tax. Though earlier figures for long term capital gains tax are also not available, as it is included in the personal income tax, there were a number of guesstimates floating around. One of these was Rs 4,000 crore, although no official figure emerged.

According to both the economic rationale and the international experience there is no support for STT. Many experts have argued that it is a bad tax. Since the only reason to impose the tax is to raise revenues, if evidence suggests that the revenue collected by the government is also marginal, there is good reason to scrap it. The FM should present budget figures for the transaction taxes on securities and on bank withdrawals in Parliament.