Stakeholders oppose CTT on fears of market erosion

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The Budget proposal to introduce Commodities Transaction Tax (CTT) on the futures trading will inflict a serious impact on the commodity futures market and may hamper the growth of the market, which is in the nascent stage.

The Finance Minister on Friday introduced Commodities Transaction Tax (CTT) on the lines of Securities Transaction Tax (STT) on futures and options.

“This will adversely affect the futures market, especially at a time when options are to be introduced and the entry of mutual funds, banks and corporates is yet to be allowed to add depth to the market,” BC Khatua, chairman of Forward Markets Commission (FMC) said.

Reacting to the proposed CTT, Jignesh Shah, managing director, MCX said, “The budget has added an incidence of 12% service charge and Rs.17 per lakh for commodities trading, which will increase the cost by more than 800%. This taxation was introduced in securities market with attendant benefit of long term capital gains and allowing futures income loss to be treated as normal business income loss.”

According to the estimate, the ministry is trying to garner Rs 795.6 crores (based on current exchange turnover of Rs 15,000 per day) whereas brokerage revenue is less than Rs 250 crores per annum for the industry.

“I think Indian commodity market will become inefficient and not serve its economic purpose of enabling risk management at this cost of trading, which is far inefficient compared to global cost of industry and business will migrate from regulated exchanges to international markets or unofficial local market,” he said.

PH Ravi Kumar, managing director, NCDEX said, “It is disappointing to note that the FM has introduced commodity transaction tax (CTT). Commodity markets are still in the nascent stage (4 years) and are a fraction of the size (one-fifth) of the securities markets.”