Monday, November 8, 2010

finally Centre & states agree to stamp duty changes

Reforms in the century-old Indian Stamp Act are crucial as stamp duty has been kept out of the proposed goods and services tax (GST) that seeks to replace a plethora of state and central taxes. 

The existing stamp act, which gives powers to states to impose duties on various transactions, can undermine the nation-wide GST by dividing the market along state boundaries because of the difference in levies. 

For instance, Uttar Pradesh had, late last year, asked the Centre to change the duty rate structure for insurance products. 

Against the existing rate of 20 paisa per. Rs1,000 (0.02%) of sum insured on life products, the state wanted 0.5%. Other states have also demanded a similar duty structure. Stamp duty on property and capital transactions accounts for a substantial portion of states’ revenues. In 2009-10, all states together have budgeted to raise.Rs 48,218 crore under this head, or 13% of their total tax revenues and would not want to give up powers readily. 

So the success of recast would depend on the extent to which the states are willing to surrender their powers to levy stamp duty. The act still contains a number of provisions from the British era, which are proposed to be dropped as part of the overhaul. Apprenticeship deed, article of clerkship, award, cancellation deed, charter party that currently face duty may be exempted from the current draft. The draft has already been circulated to the states and will be finalised soon in line with their suggestions, the official said. 

Some states have sought a change in overall duty structure to change it from monetary value to a fixed percentage based rate system. Although the stamp duty on most instruments and transactions is imposed in percentage terms a number of instruments such as insurance still attract specific duty. 

The Centre is also trying to convince states to reform the stamp duty structure for financial instruments as a part of the current makeover exercise. 

Report of the Committee on Making Mumbai an International Financial Centre had even suggested that all transactions taxes such as stamp duties should be eliminated. While states are unlikely to admit to such a radical reform, a uniform structure would certainly help financial markets. 

The stamp duty reform in case of real estate is being tackled as part of the Jawaharlal Nehru National Urban Renewal Mission . Many states have already cut stamp duty on real estate transactions to avail of the incentives provided by the scheme. 

Parliament has the powers to prescribe stamp duty rates on instruments such as bills of exchange, cheques, promissory notes, bills of lading, letters of credit, insurance policies, transfer of shares, debentures and proxies. In the case of other instruments, the power to prescribe rates rests with the states.