Amid reports that the Finance Ministry plans to impose a tax on commodity derivatives in the forthcoming Budget,the Consumer Affairs Ministry today opposed any such move saying it would distort the nascent market.
“We are not in favour of imposing commodity transaction tax (CTT),” Consumer Affairs Secretary Rajiv Aggarwal told reporters on the sidelines of an event organised by industry body Assocham.
He said that a CTT on commodities derivatives on the lines of Security Transaction Tax (STT) will affect the growth of the organised commodity market. He added that the commodity derivatives markets are set up for price discovery and cannot be compared with stock markets.
According to media reports,the Finance Ministry was mulling over reopening the old proposal made by then Finance Minister P Chidambaram in the 2008-09 Budget to levy a 0.017 per cent tax on commodity derivatives trade (Rs 17 on Rs 1 lakh worth transaction).
Last month,Consumer Affairs Minister K V Thomas had written a letter to Finance Minister Pranab Mukherjee that it “would defer if there is an intent of introduction of CTT on commodities derivatives in the ensuing Finance Bill 2012.”
The Ministry of Consumer Affairs regulates the commodities market through the Forward Markets Commission. Currently,there are 21 commodity bourses.
The CTT of 0.017 per cent on commodity derivatives was levied in the 2008-09 Budget,but was not operationalised. The proposal was kept in abeyance following apprehensions aired by then Consumer Affairs Minister Sharad Pawar and the Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan.
Meanwhile,commodities players are also opposed to the introduction of CTT as they fear it would divert hedgers and speculators to rampant ‘dabba trading’ (illegal trading). The tax would also impact the volume and liquidity of commodity exchanges.
They said while the stock markets are to channelise investments for capital formation,commodity markets are price discovery and risk management platforms.
The commodity,before it comes for trading on the exchange platforms,is already taxed to the tune of almost 12 per cent,with taxes such as mandi tax,cess,handling costs and warehousing charges,they added.
The total turnover of the commodity futures market,which has been in existence since 2003,rose by 63 per cent to Rs 144.31 lakh crore in the April-December period of the current fiscal.