The top five commodity exchanges in the country have come together to oppose any proposal to impose commodity transaction tax (CTT) in the budget for 2013-14 fiscal. The buzz on imposition of the levy is getting louder by the day.
The tax was first proposed in the 2008 Budget, but was not implemented due to opposition by traders, brokers and commodity exchanges.
The following year it was referred to the Prime Minister’s Economic Advisory Council which said that the fundamentals and rationale did not justify the levy.
CTT is similar to securities transaction tax of 0.1 per cent imposed on delivery-based transactions in the stock market.
On a transaction of Rs 1 lakh, stock investors currently pay Rs 100 as transaction tax.
“A demand has been raised by certain vested interests for imposing transaction tax on derivative transactions across all asset classes, including commodity, currency and interest rate for creating a level playing field across all asset classes,” said a joint statement issued by MCX, NCDEX, NMCE, Indian Commodity Exchange and Ace Commodity Exchange.
Jignesh Shah, Vice-Chairman, MCX, said that while the cash markets are essentially for investment for capital appreciation, exchange-traded commodity derivatives are for hedging price risk.
Cautioning against the CTT proposal, Dilip Bhatia, CEO of Ace Commodity Exchange, said that the increase in cost of trading will drive away hedgers from the transparent platform, besides depriving farmers of the price signal emanating from the exchange.
Anil Mishra, Managing Director of the National Multi Commodity Exchange, said the exchanges are already working on a wafer thin margin and collect a transaction charge of just Rs 1 per lakh to attract investors.
CTT will only incentivise dabba (illegal) trading which does not impose margin money, transaction fee or any tax for that matter, said Mishra, who was part of two Joint Parliamentary Committees on online commodity trading.
Given the lower tax collection growth and widening fiscal deficit, will the Government let go an opportunity to raise revenue? Will the commodity exchanges be third time lucky? Come February 28, we will know.