which was earlier not permitted .”
Arun Thukral , MD & CEO , Axis Securities , echoes similar views . “ In stockbroking , the brokerage component on which service tax is calculated is a minuscule proportion of the overall transaction . This has slightly become dearer to retail participants in the post-GST era . However , we have not seen this as having a material impact on the overall charge structure . For example , on a one per cent brokerage , the overall cost due to the subsuming of service tax into GST will be about 0.03 per cent or three basis points . So we believe that from a long-term investor ’ s perspective , this may not be too significant since the overall shift is just three basis points .”
While GST levy has increased costs , the rise is only marginal to the overall transaction value for both intra-day traders and longterm ( delivery based ) investors . The cost rise has been not more than three per cent on the upper side . Brokerages , which could be charged at `100 for a share transaction , had a service tax of 15 per cent in the pre-GST era . Post-GST , this would go up to 18 per cent . This means a net payout of `118 instead of the earlier `115 . The impact has been nominal on investors , says Thukral .
However , others believe that perception matters . For some , three percentage point increase in the levy may seem marginal , but for few others it is a hike of 300 basis points . The rise in the rate was not felt till now , as the secondary market was witnessing a sustained bull phase . However , when the market becomes volatile , particularly with the general elections coming up next year , today ’ s reasoning may get converted into a scary situation .
Rakesh Somani , Director at Eureka Stock and Share Broking
Arun Thukral
MD & CEO , Axis Securities
In stock-broking , the brokerage component on which service tax is calculated is a miniscule proportion of the overall transaction
says , “ The impact of GST on brokerage houses wasn ’ t felt till now and it did not impact on the trading volume . The service tax rate got increased from 15 per cent to 18 per cent , which went unnoticed . Since this government came to power in 2014 , we have seen service tax rate rising from 12 per cent to 18 per cent , which is an increase of 50 per cent in three years . This , too , went without anyone noticing it , or no one is making any hue and cry about it , as the markets were witnessing good times .”
“ The Indian markets have the highest trading costs among the world bourses compared to all the emerging and developed markets , and this continuous rise in trading costs should make our markets shallower , which we ’ ve been
There is a plan to charge GST on clients who make delayed payments on Margin Trading . This will not only have an impact on market turnover , but on overall price movement and market sentiments as well . generally talking about ,” said Somani , who was previously President , Association of NSE Members in India ( ANMI ).
Meanwhile , the income tax ( IT ) department is contemplating on charging GST on clients who make delayed payments on Margin Trading . This may act as a dampener not only with respect to its impact on market turnover , but on overall price movement and market sentiments as well . The government is yet to officially clarify on this issue .
Margin Trading is a kind of loan financing provided by a broker to its clients to buy and sell , or to bridge the shortfall while trading in the securities . For the purpose of securities dealings , the investors may borrow funds from banks , nonbanking finance companies ( NBFCs ), or the brokers they deal with .
“ Generally , there is no GST on interest . However , the view taken by the IT department is that when interest is paid to a stock broker , including loans for Margin Trading , GST is leviable , thus increasing the trading cost for the investors when they deal with stock brokers . However , GST is not charged on interest paid on loans taken from banks or NBFCs though ,” claims Kamlesh Shroff , spokesperson of BSE ’ s Brokers Forum ( BBF ).
According to Somani , the new levy proposal has created confusion among the trading community and should have direct impact on trading costs and volumes . Representations are being made by various associations , including ANMI and BBF . “ It seems GST should not be applicable on this , but if made , there will be a sharp decline in trading volumes in weak market sentiments ,” he says .
When markets are on the upswing , it can take each and every levy in its stride - whether justified or not . But this time , it is going to be a litmus test for the markets . yagneshkansara @ gmail . com
www . outlookmoney . com July 2018 Outlook Money 31