The announcement by SEBI that it will recommend a dilution in the Securities Transaction Tax (STT) is a sad one and made without ‘application of the mind’. STT was introduced in lieu of abolition of long term capital gains and a very thin rate of tax on short term gains.
Our market does volumes of more than one lakh crore rupees on most days with ninety percent or more being of the satta bazaar variety (the F&O segment). This clearly shows that the STT is not a deterrent to trading. Trading is more a function of the state of the market. The government has already made capital gains from listed stocks on par with agriculture income.
More dangerous is the fact that this kind of a recommendation comes from a market regulator, who has been like the proverbial police in the hindi films. SEBI should stick to what it is supposed to do. Let them not get in to thinking that they are here to grow or throttle the market. Their sole job is to provide a clean platform and also ensure speedy punishment for wrong doers. Whilst they have managed the first one reasonably well, the second role of punishing wrong doers has been a dismal failure. To cover that up, they borrowed the immoral concept of ‘compounding’, from the West, where all malpractices in capital markets originate.
Let SEBI focus on regulation and leave the economics to market forces. The irony is that the exchanges (which are akin to public utilities) are busy issuing stock and playing the market cap game. It is matter of time before they impose levies on players and participants in this endeavour. Let SEBI stop this first rather than doling out favours to players who are in any case addicted to gambling on the bourses. SEBI is like the child who has a toy, but does not know what to do with it, so eyes someone else's toy.