Ashok Dasgupta

Proposal to make PAN sole identification number for all in securities market

NEW DELHI: All these years, the boom in the stock markets coupled with excellent corporate results was showcased by Finance Minister P. Chidambaram as a barometer for the robust health of the country's economy. But when he sought to tap the sector for a part of the revenue required for social sector objectives and greater good of the people, the stock markets tanked in utter dismay.

Particularly affecting the markets which lost about 3-4 per cent in a single day's session were Mr. Chidambaram's proposals to hike the dividend distribution tax (DDT) from 12.5 per cent to 15 per cent on dividends paid by companies to their shareholders as also include ESOPs (employees stock option) under the Fringe Benefits Tax (FBT). "I propose to raise the rate of dividend distribution tax from 12.5 per cent to 15 per cent on dividends distributed by companies," Mr. Chidambaram said, while arguing that it was required for vertical equity.

Also, as the dividends distributed by money market mutual funds and liquid mutual funds enjoyed concessional tax rates giving rise to huge arbitrage opportunities, he said, "I propose to address this distortion by raising dividend distribution tax paid by such entities to 25 per cent for all investors."

Such was the setback that some of the other proposals like permitting delivery-based short selling by institutional investors and making PAN (permanent account number) the sole identification card for all participants in securities market failed to enthuse the investors' sentiment on the bourses.

Mr. Chidambaram also proposed to allow individuals to invest in overseas securities through the domestic mutual funds route. "In line with measures announced every year to strengthen the market, I propose to make PAN the sole identification number for all participants in the securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account," he said.

The Finance Minister also sought to promote the flow of investment into the infrastructure sector by permitting mutual funds to launch and operate dedicated infrastructure funds.

Mr. Chidambaram also proposed to formulate an enabling mechanism to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangeable Bonds.

The stock markets, however, did not appear to pay heed to these fresh avenues and remained despondent throughout the day.