Finance Minister P Chidambaram is likely to impose transaction tax on debt deals under the negotiated dealing system too.

The Budget for 2004-05 proposed a 0.15 per cent transaction tax on both debt and equity purchases from recognised stock exchanges.

According to finance ministry sources, debt deals in the legal but off-market NDS account for almost 30-35 per cent of the total turnover of the debt market.

During the last financial year, the total turnover of the debt market was close to Rs 20 lakh crore, with the wholesale debt market segment in the National Stock Exchange and the Bombay Stock Exchange accounting for almost Rs 13 lakh crore, the sources said.

"It will be only fair and proper to tax all debt deals, irrespective of where they are transacted, the NDS or the WDM segment," a finance ministry source told Business Standard.

While the sources were tightlipped about a change in rates, it was likely

that Chidambaram would cut the transaction tax rate for the debt market significantly, given the thin profit margins of primary and bond dealers.

Chidambaram had on Friday made a suo motu statement that he would announce a formula Monday that would please all stakeholders in the capital markets.

While stockbrokers expected some relief, the sources said it was unlikely that the ministry would reduce the rate on trades that resulted in delivery.

The ministry is, however, seriously considering a reduction in the transaction tax rate on day trading, which does not result in actual delivery of stocks.

Arbitrageurs and day traders account for almost 55-60 per cent of the daily trade volume at the bourses.

The finance ministry source said the transaction tax was here to stay. "It has been well thought out. Yes, the rates might be reduced for the various capital market segments, resulting in a differential tax," said the source.