Mumbai: Banks, led by the Fixed Income Money Markets and Derivatives Association (FIMMDA) and Foreign Exchange Dealers Association of India (FEDAI), are planning to petition the government against a Budget proposal in the Finance Bill which seeks to bring trades in interest rate futures and currency non deliverable forward (NDF) into the ambit of stamp duty.
Bankers are uncomfortable with the fact that this stamp duty will be imposed on an ad volerum basis without any upward cap which means there could potentially be hundreds of crores of duties levied which could discourage trading.
“The Finance Bill has included products like forex and interest rate derivatives into the stamp duty ambit. The duties range from 0.001 per cent to 0.003 per cent, but are based on ad valorem basis which means that there is no upward cap. It is based on the amount traded. Then there are issues linked to the definition because these products cannot be equated with real estate as there is no buyer and seller but two counter parties. We fear that this higher cost will have to be loaded on to the trading activity which in turn will cost the real economy,” said a derivatives trader with a large private sector bank. CEO of FIMMDA, DVSSV Prasad, confirmed that some clarifications have been sought from the government based on the budget proposal.
“But after the gazette notification, no one has yet given comments,” Prasad said through a text message. FIMMDA has not assessed the impact the new duty will have on trading.
“On one side, the government and RBI want to develop the money market. On the other, they put an unnecessary duty. We will have to approach the ministry and only hope that they take this back,” said a treasurer of a private sector bank.
The Finance Bill has proposed that all issuance and transfers of ‘securities’ will be subject to stamp duty (i.e., exemption on transfer of dematerialised securities has been removed). Stamp duty will be calculated on an actual traded price for listed securities. But some argue that a unified stamp duty is in line with principles on which GST was introduced and follows Government of India’s idea of improvement of ‘ease of doing business’. “This would restrict shopping for jurisdictions with favourable stamp duties. The duty imposed on issuance of securities have been rationalised and now made ad valorem. So, if your issue size isn’t large, you need not pay a higher ceiling.
For example, on issue of NCDs, duty payable was Rs 25 lakh for Rs 1,000 crore, now it will cost Rs 5 lakh,” said Soumya Mohapatra, principal associate, capital markets team, Khaitan & Co.