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Budget 2019: Brokers Pitch Tax Incentives For Investors To Boost PSU Fundraising

Brokers want government to incentivise equity market investments to channelise household savings for recapitalising PSU banks.



Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)
Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

Stock brokers want the government to incentivise equity market investments to channelise household savings for recapitalising state-owned banks.

The government should make all individuals and Hindu Undivided Family eligible to invest Rs 50,000 in initial public offering, follow-on public offer or mutual funds, and allow 50 percent tax rebate on the amount invested, the Association of National Exchanges Members of India and BSE Brokers’ Forum urged the finance ministry.

An additional avenue to raise money would help the government to recapitalise public sector banks, divest state-owned entities and fund projects of national importance, both the broker lobbies said in a representation to the ministry. With the current tax base of about 7.14 crore taxpayers, the government would be able to collect Rs 1.75 lakh crore in taxes in financial year 2019-20, if 50 percent of them invest Rs 50,000 per annum, according to the broker lobbies.

Dividend Distribution Tax

The brokers’ associations sought a cut in dividend distribution tax—imposed by the central government on companies as per dividend paid to their investors—from 15 percent to 10 percent to help firms raise more equity capital and reduce dependence on debt which makes them vulnerable to overleveraging, and sometimes a financial collapse.

An adversarial dividend taxation policy prompts companies to favour debt capital over equity capital because of a tax advantage, the traders’ lobbies said. “This (dividend taxation) leads companies to deploy excessively high financial leverage, which makes them susceptible to corporate collapse if their operating leverage suffers even a bit.”

The taxation on dividend now is around 20 percent because of triple taxation—after companies pay corporate tax, they are subjected to a dividend distribution tax of 15 percent, on which surcharge and education cess is levied.

Securities Transaction Tax

The brokers also suggested reducing the securities transaction tax to 0.05 percent from 0.1 percent on delivery-based purchases and sale of equity.

They suggested lowering STT on:

  • Non-delivery based intra-day trading to 0.01 percent from 0.025 percent.
  • Sale of futures to 0.0075 percent from 0.01 percent.
  • Exercise of options to 0.05 percent from 0.125 percent.