Exchanges reel from tax on trade in commodities

Profits of commodity bourses in the country could take a hit after the finance minister proposed a commodities transaction tax, reports Vyas Mohan.

Profits of commodity bourses in the country could take a hit after the finance minister on Friday proposed a commodities transaction tax and also bringing commodity exchanges and clearing houses in the service tax net.

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According to exchange officials, the commodity transaction tax alone could push up the cost of transactions on exchanges by nearly eight times (800 per cent).

"Commodities market are as cost sensitive as foreign currency markets up to four decimal points. An increase in cost by 800 per cent with the proposed tax will make the Indian market unusable. Risk management becomes incomparable with global transaction costs," said Joseph Massey, deputy managing director of the Multi-Commodity Exchange (MCX). This, coupled with the service tax, which will be passed on to investors, could make them incompetent among global commodity exchanges.

"Commodity exchanges charge around Rs 2.50 per Rs 1 lakh of transaction. With the commodities transaction tax, this amount could go over Rs 17. That would make us incompetent, as international hedgers would go in search of cheaper exchanges around the globe," said an official with a leading commodity bourse.