Commodities Transaction Tax (CTT)


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT), levied in India, on transactions done on the domestic commodity derivatives exchanges.Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax.
The concept of CTT was first introduced in the Union Budget 2008-09. The Government had then proposed to impose a commodities transaction tax (CTT) of 0.017% (equivalent to the rate of equity futures at that point of time). However, it was withdrawn subsequently as the market was nascent then and any imposition of transaction tax might have adversely affected the growth of organised commodities derivatives markets in India. This has helped Indian commodity exchanges to grow to global standards(MCX is the world’s number 3 commodity exchange; Globally, MCX is No. 1 in Gold and Silver, No. 2 in Natural gas and No. 3 in Crude Oil)
In the Union Budget 2013-14 CTT has been re-introduced, however, only for non-agricultural commodity futures at the rate of 0.01% (which is equivalent to the rate of equity futures). Along with this, transactions in commodity derivatives have been declared to be made non-speculative; and hence for traders in the commodity derivative segment, any losses arising from such transactions can be set off against income from any other source (similar provisions are applicable for the securities market transactions).
The CTT rules have been notified by Department of Revenue, Ministry of Finance on 19 June 2013 with effect from 1 July 2013. As per the notification only 23 agricultural commodities have been exempted from CTT. Like STT, the commodity exchanges have been entrusted to collect CTT on behalf of Government of India. According to the finance ministry estimate, CTT will bring revenues of around Rs 45 billion to government. It is also aimed at bringing transparency in the commodity exchange market.
Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market and to bring parity between securities market and commodities market such that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for price risk management and price discovery of the underlying asset (commodity / currency/ stocks / interest). It is therefore essential that the policy framework governing is uniform across all the contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The proposal of CTT also appears to have stemmed from the general policy of the Government to widen the tax base.
Bases of Opposition of CCT
(i) The CTT will be additional burden on traders because they already pay deposit margin, brokerage, stamp duty and transaction charges.
(ii) Indian commodity exchanges will become 350 percent more expensive due to the CTT and that a bulk of the trade will shift to unofficial channels or move outside India.
(iii) It would impact lakhs of jobs.
(iv) Transaction tax on commodity derivatives will shift the declining business to either illegal 'dabba' trading or overseas commodity exchanges. 'Dabba' trading is a commonly used term for off-market, informal trade activities, which are illegal in nature and where punters indulge in speculative trading to make quick money without paying any taxes or transaction fee.
 

Tuesday, 04th Feb 2014, 08:32:10 AM

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