Bullion traders and commodity players have asked Union Finance Minister P. Chidambaram to refrain from imposing transaction tax on commodity futures.

Referring to reports indicating that the Government might impose such tax, bullion traders said the industry had been using the exchange platform to hedge the risks.

Farmers, merchants, stockists, processors, importers and exporters too are benefiting from the future markets by insulating themselves against adverse price movements.

“Besides risk management, the futures market is also helping lakhs of commodity stakeholders by giving them price information. Any increase in the cost of participation in trading would reduce market liquidity through decrease in trading volume,” the Visakhapatnam Gold and Silver Jewellery Merchants’ Association said.

In a letter to the Finance Minister, the association said that a hike in the transaction tax rate by 0.2 percentage points in China had reduced the trading volumes by a third. “It could also lead to a shift to unofficial and illegal dabba trading, making the markets fail in their economic role of price discovery. Lakhs of stakeholders would be impacted,” it said.

Cardamom Planters’ Association and Kerala Cardamom Dealers’ Chamber, too, felt that the transaction tax could hurt the interests of the trade, farmers and retail investors in the commodity markets.

“The commodity market is already heavily taxed. It is being subject to a range of taxes such as mandi tax, import duty, sales tax, Octroi and market cess. Income Tax too is levied on futures market transactions. Any additional taxation would increase the burden,” Santhosh Joseph, Secretary of Kerala Cardamom Dealers Chamber, said in a separate letter.

kurmanath.kanchi@thehindu.co.in