Commodities trading to be taxed,made on a par with equities

“There is no distinction between derivative trading in the securities market and derivative trading in the commodities market,only the underlying asset is different. I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures,that is at 0.01 per cent of the price of the trade,” said P Chidambaram in his speech.

He,however,added that CTT will be allowed for deduction if the income from such transaction forms part of business income.

The imposition of CTT on commodities other than on agriculture is likely to help government with some decent revenues. At the leading commodity bourse MCX,agriculture trade turnover accounted for only 2 per cent of the total turnover that stood at Rs 14,890,596 crore in the calendar 2012.

Market participants are,however,disillusioned by the move and feel that the move may even lead to unauthorised trading.

“The move will,to some extent,discourage investment in commodity futures trading and reduce liquidity. It is feared that it may also divert traders towards unauthorised or illegal trading,” said Naveen Mathur,associate director,commodities at Angel Broking.

“In commodities the lot size is big so even a small percentage point introduction of CTT will have a big impact,” said Alex Mathew,head of research at Geojit BNP Paribas Financial Services.

There are others in the commodity trading industry who feel that since agricultural commodities have been left out of it,there would be a natural flow of investors into that segment.

If CTT came as a dampener for those dealing with the commodities trading,the finance minister brought in some cheer for investors and traders dealing with equity futures and mutual funds sale and purchase. He proposed to bring down the STT on equity futures from 0.017 per cent to 0.01 per cent. He also reduced the tax on mutual fund and ETF redemptions at fund counters significantly from 0.25 per cent to 0.001 per cent. Also,the rate of tax on MF/ETF purchase or sale on exchanges was also cut sharply from 0.1 per cent to 0.001 per cent.

“Reduction of STT on equity futures is good for the day traders and the markets and will lead to rise in volumes,” said Rajiv Deep Bajaj,vice-chairman and MD,Bajaj Capital. He,however,added that equitable treatment of both the segments was needed.

“Reduction of STT and inclusion of mutual funds would promote household participation in securities markets and would increase the investor base,” said Joseph Massey,MD and CEO,MCX-SX.

While the CTT will be paid by the seller involved in the trade,the tax will be collected by the recognised association and paid to the government.