Policy Roundtable on Taxation of Transactions
April 22, 2008, Dewan-e-aam, The Taj Mahal Hotel
Man Singh Road, New Delhi 110 003, India

The Ministry of Finance had recently announced a proposal to levy a new transactions tax on the commodities derivatives markets and had also proposed important changes to the STT on equity market transactions. Taxation of transactions in commodities and equities are likely to impose a significant impact on liquidity, informational efficiency and transactional behavior. There is adequate global evidence to suggest that higher transactions taxes lead to increased market volatility and are also likely to cause strong adverse consequences for pricing efficiency on the derivatives market and therefore on the overall equities and commodities markets. Higher transaction costs and price inefficiencies are also likely to impose higher costs on individual investors who choose to transact in the equity or commodity markets either directly or through institutional vehicles such as mutual funds and insurance firms.

In order to evaluate the potential impact of the CTT and the STT, Invest India Economic Foundation (IIEF) and National Institute of Public Finance and Policy (NIPFP) jointly hosted a half-day policy roundtable on taxation of transactions. The roundtable was scheduled on April 22, 2008 at New Delhi. The objective of this meeting was to build broad-based understanding and consensus on the issues related to CTT and STT. A cross-section of domain experts and stakeholders including policymakers, regulators, economists, exchanges, market participants and the financial media attended this roundtable. The roundtable involved three sessions: one focusing on public finance, one on financial markets, and one on the international competition dimension. Each session included a 20 minute presentation followed by 40 minutes of discussion. The roundtable ended with lunch.