Finance Minister P Chidambaram is set to lower the proposed 0.15 per cent transaction tax rate on debt deals and day-trading in equity on Monday.

According to officials, the finance ministry, after consultations with the Securities and Exchange Board of India, agreed that the 0.15 per cent tax on debt trading would leave bond dealers with negligible profit margins.

There has been almost zero trading on the wholesale debt market segment of the National Stock Exchange since July 8 when the transaction tax proposal was announced. The negotiated dealing system where the transaction tax is not applicable also saw little trading.

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The sources said day-traders and arbitrageurs accounted for almost 55-60 per cent of the total turnover in the stock markets.

Since these transactions did not result in delivery, the imposition of the 0.15 per cent transaction tax would severely hamper liquidity, they said.

The minister told the Lok Sabha on Friday he would make a statement in the House on Monday on the transaction tax issue.

In a suo motu statement during the debate in the House on the Budget, Chidambaram said, "I have heard the opinion of the market and everybody on the transaction tax. I hope I would be able to make a statement to this House on the subject, which would please everybody."

In debt trading, the finance ministry is faced with a piquant situation since 30-35 per cent of the debt deals under the NDS are left uncovered by the transaction tax.

The tax has been proposed only on trade in recognised stock exchanges, i.e. the WDM segment of the NSE and Bombay Stock Exchange. The sources said the ministry would bring a parity by imposing a substantially lower transaction tax across the NDS and WDM segments.

They also did not rule out the exemption of debt deals from the tax.

A change in the transaction tax regime will mark the first alteration in the Budget 2004-05 proposals, and is expected to give a leg-up to the stock markets.

The tax was mooted as an alternative to the capital gains tax regime. The Budget proposes to do away with long-term capital gains tax and reduce the short-term capital gains tax rate to 10 per cent.

Stock brokers met Chidambaram earlier this week seeking an exemption of day traders from the tax, claiming it amounted to double taxation of their business income, in addition to their income-tax liability. Sections of the community also observed a day's token strike at the bourses to press for their demands.