06 July 2009

Indian Budget 09 - early thoughts - STT

The Indian Budget 2009 has abolished the Commodity Transaction Tax, a tax on every transaction in the commodities markets. What is interesting is that the Securities Transaction Tax, a similar tax on securities market transactions, has not been abolished.

This blog has maintained support for the STT even while economists have called it a 'sand in the wheels' tax which reduces the efficiency of markets by introducing a cost to each trade. The rationale for the support of STT by this blog is that along with the introduction of the STT, long term capital gains tax has been removed from shares so long as the very small STT is paid. This levels the field between a majority of foreign investors who pay no capital gains tax in any case because of the use of abusive tax treaties like Mauritius and Indian investors. A transaction tax applies to all investors and negates the pre-STT neo-colonialism of the foreign investor paying no tax while the Indian investor paying the full rate.

Before removing the STT, the Indian government must modify abusive tax treaties - and therefore remove the crime of being an Indian investor.

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