Budget 2019: From corporate tax, STT cut to fiscal deficit; stock market’s key expectations

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Budget 2019: Securities Transaction Tax has been high for a long time and the investors are waiting for this to be brought down.

Budget 2019: Ahead of the Union Budget 2019 scheduled to be presented later this week, corporate tax cut, STT rationalisation and controlling the fiscal deficit are among the key expectations of the stock market experts. A cut in STT (Securities Transaction Tax) or allowing it to be written off as tax input remains on top of the Budget wishlist of market participants. A significant reduction in STT will aid price discovery and make the markets efficient, Nikhil Kamath, Co-Founder & Chief Investment Officer, Zerodha told Financial Express Online. Notably, ever since the LTCG (Long-Term Capital Gains) tax on equities was introduced last year, the industry body has been pushing harder for STT to be allowed as rebate under section 88E which could see the light of the day in the upcoming Budget. “Securities Transaction Tax has been high for a long time and the investors are waiting for this to be brought down. Lowering it will be very positive for the domestic stock markets,” Amit Gupta, Co-Founder, and CEO, TradingBells said.

Next on the market’s wishlist is a corporate tax rate of 25% across the board. After the government reduced the corporate tax rate rate to 25% for MSMEs last year, the investor community hopes that the same can be extended to the entire corporate fraternity. “We hope that the government can extend the benefit of lower corporate tax rate of 25% (versus 30% corporate tax rate) to more companies; the current threshold for the lower tax rate is Rs 2.5 bn of turnover,” Kotak Securities said in a note, adding that the government may want to consider a graded corporate tax structure with different tax rates for companies based on their income levels. According to the brokerage firm, this change could enable smoother integration of the smaller companies into the GST system.

The stock market would hope that the government sticks to the fiscal deficit target of 3.4% of GDP.  “Last year it was set at 3.4% and if this is raised in the upcoming budget, it would not be good news for the markets as it may have a direct impact on the currency as well as the government bond yields,” Amit Gupta said, adding that a rise in bond yields would reduce the chances of RBI cutting interest rates any further this year thereby contracting the liquidity in the markets. The budget will serve to provide a direction to the stock market investor’s about the government’s economic and social agenda and fiscal management plan. Kotak Securities notes that the Indian market is currently trading at high valuations, supported by low global bond yields, and high hopes of economic reforms and India’s long-term growth story.