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Low trade volumes to hit government revenues

Rakesh P Sharma & Sangita Shah

The shrinkage in trading volumes is not only affecting investors, brokers and sub-brokers, it is also having a negative impact on the Union government's kitty. The ban on naked short sales on stock exchanges has been successful in curbing the extreme volatility and has also been equally successful at reducing the government's revenue from this segment of the economy.

The government is expected to suffer a 53.25 per cent fall in its revenue from service tax on brokerage in March 2001 compared to the corresponding period of 2000. The government levies a service tax of Rs 5 per Rs 100,000 turnover on the brokerage on all trades executed on all stock exchanges.

The combined volume of Bombay Stock Exchange and National Stock Exchange has more than halved to Rs 998.28 billion in March 2001 as against March 2000's Rs 1874.05 billion.

This means that service tax collections would amount to around Rs 50 million for 2000-01, which is tremendously low compared to the previous year's Rs 98 million.

In fiscal 2001, the aggregate volume on BSE and the NSE -- the two exchanges which control more than 80 per cent of the total trading business in the country -- stood at Rs 22349.58 billion.

Ironically, Sebi itself will also lose a substantial chunk of its income. Sebi imposed restrictions on short sales effective March 8 to curb excessive volatility in the share prices initially for two weeks and later extended it. Market participants are of the view that Sebi may continue the ban on short sales till the rolling settlement is introduced from June.

In such a scenario, the government will see a further drop in its revenue from the service tax as the volumes will continue to be low.

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