Here are a few thoughts on the STT increase. The 25% increase in F&O STT will further move volumes from futures to options. The actual impact wouldn’t be much because over 80% of the volumes come from options & STT is on premium, not on contract value as it is in futures.

It is good that the impact will not be as much on options. But a vibrant capital market needs activity across futures and options. They both solve for different needs of traders, speculators, arbitrageurs, & hedgers.

People think traders, the kinds who trade F&O, don’t add value to the capital markets. The truth is the exact opposite. Without traders, it would be impossible for an exchange to exist in its current form, where investors can buy and sell securities with minimal impact costs.

For traders to exist and do well, taxation must be conducive. Over the year, STT, stamp duty, and GST add up to ~Rs 25k crores. This is separate from taxes paid on profits. By the way, the brokerage & exchange industry revenues are probably another ~RS 25k crores.

For the same trading volumes as last year, the increase in STT would mean an additional ~ Rs 2k crores if market activity remained at the same levels. But given that new account openings have dropped & active accounts plateaued, volumes will likely drop next year.

It may sound counterintuitive, but an additional transaction tax could result in lower trading volumes in an environment like this. STT collections could be lower than if STT wasn’t increased. So an increase in STT may not lead to higher collections if that is the intent.

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