Commodity indices want FM to withdraw transanction tax | business | Hindustan Times
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Commodity indices want FM to withdraw transanction tax

business Updated: Mar 07, 2008 01:23 IST
Arun Kumar

The proposed commodities transaction tax (CTT) in the budget is expected to have a detrimental effect on the country’s commodity market, which is just four year’s old and yet to mature. The CTT at the rate of Rs 17 per lakh could be the harbinger of reduced volumes in commodity exchanges since commodity markets work on very thin margins.

PH Ravikumar, managing director of National Commodity & Derivative Exchange (NCDX), said: “The imposition of CTT would result in a significant increase in the transaction cost by more than 800 per cent. The effective transaction cost after the CTT is expected to be highest in the world,” he added.

Comparing the commodity derivative market with the securities derivative market, Ravikumar said:. “The securities market has matured with many types of derivatives instruments, while the commodities derivative market is at a nascent stage with one product – future,” he said.

Jignesh Shah, MD, Multi Commodity Exchange, said: “Unlike the securities market, commodity markets are globally-linked and traders have the option to trade on other stock exchange. In case one increases the transaction cost, it is certain that traders would move to other globally competitive markets.”

Currently, the cost of transaction on the commodity exchange is Rs 2 per lakh. However, after imposition of the CTT at Rs 17 per lakh and and service tax of Re 0.25 per lakh as per the proposal, it will go up to Rs 19.25 per lakh. The government has estimated a revenue collection of Rs 1,000 crore through this route from the commodity markets that would have gross turnover of Rs 50,000 crore.

Experts said that since the hedging market is much cost sensitive, increase of cost by 800 per cent would make the market highly inefficient. Indian exchanges will become the costliest in the world losing global competitiveness.The chiefs of NCDX, MCX and the National Multi-Commodity Exchange have made representations to commodity regulator Forward Market Commission and to the secretary of the Ministry of Consumer Affairs.