Zerodha CEO Nithin Kamath on Monday weighed on the continuing debate over the influence of the rise in price of securities transaction tax (STT) to be levied on sale of choices in addition to futures and mentioned the transfer would possibly “lead to decrease buying and selling volumes”.

“The 25% enhance in F&O STT will additional transfer volumes from futures to choices. The precise influence would not be a lot as a result of over 80% of the volumes come from choices & STT is on premium, not on contract worth as it’s in futures. It’s good that the influence won’t be as a lot on choices. However a vibrant capital market wants exercise throughout futures and choices. They each remedy for various wants of merchants, speculators, arbitrageurs, & hedgers,” Kamath mentioned in a Twitter thread.

Within the Finance Invoice 2023, handed by the Lok Sabha on Friday, the Securities Transaction Tax on choices is proposed to be elevated to 0.0625 per cent from 0.05 per cent and on futures contracts to 0.0125 from 0.01 per cent.

Underneath the brand new guidelines, choice merchants must pay Rs 6,250 for each Rs 1 crore value of turnover as in opposition to Rs 5,000 that’s being paid at present, which interprets right into a hike of round 25%. Additionally, merchants will now must pay STT of Rs 1,250 on Rs 1 crore of turnover whereas promoting futures.

Kamath additional mentioned that for merchants to exist and do nicely, “taxation should be conducive”.

“Folks suppose merchants, the varieties who commerce F&O, do not add worth to the capital markets. The reality is the precise reverse. With out merchants, it might be unimaginable for an trade to exist in its present type, the place traders can purchase and promote securities with minimal influence prices. For merchants to exist and do nicely, taxation should be conducive. Over the 12 months, STT, stamp obligation, and GST add as much as Rs 25k crores. That is separate from taxes paid on income. By the way in which, the brokerage & trade trade revenues are in all probability one other Rs 25k crores.” tweeted Kamath.

Kamath additional mentioned “an extra transaction tax might lead to decrease buying and selling volumes in an setting like this”, referring to the influence of tight macro financial circumstances, which is being felt on fairness markets throughout the globe, aside from the banking turmoil being witnessed in Western international locations. India’s market capitalisation has dipped under $3 trillion for the primary time in 9 months, primarily as a result of persistent promoting strain brought on by the instability of banks within the US and Europe, reported Moneycontrol on Monday. India’s market capitalisation at present stands at $2.99 trillion, a degree final seen on June 23, 2022. 

“For a similar buying and selling volumes as final 12 months, the rise in STT would imply an extra Rs 2k crores if market exercise remained on the identical ranges. However on condition that new account openings have dropped & energetic accounts plateaued, volumes will possible drop subsequent 12 months. It might sound counterintuitive, however an extra transaction tax might lead to decrease buying and selling volumes in an setting like this. STT collections might be decrease than if STT wasn’t elevated. So a rise in STT might not result in increased collections if that’s the intent,” tweeted Kamath.

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