The levy of transaction tax on non-agriculture commodities in the Union Budget unveiled on Thursday pulled down shares of MCX and Financial Technologies on the bourses.

The move is expected to impact the MCX more as it accounts for a major chunk of trading in metal and energy, unlike the NCDEX and Ace Commodity Exchange which focus largely on agriculture commodity.

MCX shares were down five per cent at Rs 1,093 while Financial Technology dipped to the day’s low of Rs 837, but recovered to close with a marginal gain of 0.53 at Rs 846 on Friday.

Justifying CTT, the Finance Minister in his Budget speech said there is no distinction between derivative trading in the securities markets and derivative trading in commodities markets.

Only the underlying asset is different. It is the time to introduce commodity transaction tax in a limited way, he said, without mentioning the reason for letting out agriculture commodity from the tax net.

“This kind of treatment is like having STT (securities transaction tax) on shares of ‘Company A’ and no STT on ‘Company B’,” said Shreekant Javalgekar, MD & CEO, Multi Commodity Exchange of India.

Price discovery issue

Naveen Mathur, Associate Director, Angel Broking said the move would increase transaction costs by four to five times and, therefore, to a large extent discourage participation in commodities derivatives market.

Lack of participation and liquidity will distort price discovery mechanism, the main purpose of the derivative Exchanges, he said.

Ajay Kumar Kedia, Research Analyst, Kedia Commodity Comtrade said the tax was first proposed in 2008, but abolished based on the Prime Minister’s Economic Advisory Council recommendation in the Budget 2009.

“It could reduce demand for trading of commodities on derivative exchanges. While it is a setback for the commodity market, the tax will help dabba (illegal) trading more due to the five times increase in the cost,” he said.

Suresh.iyengar@thehindu.co.in

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