CTT abolition raises hope of more steps

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: In a bid to expand commodity futures markets that has been reeling under the impact the repeated government interventions, Budget 2009-10 abolished the Commodity Transaction Tax (CTT) proposed in the previous budget, but stopped short of making any announcement on re-starting futures trade in many banned commodities or having a common regulator for all financial markets, including the commodities markets, under the Securities and Exchange Board of India as envisaged in the latest Economic Survey.

Although, the CTT was not implemented in the strict sense—as no formal notification on implementing the tax was issued—but players in the commodity derivatives market felt that the total cost of transaction would have risen to Rs 19.25 per lakh, from the existing Rs 3 per lakh after the tax was implemented, severely hampering the growth and participation in the nascent trade.

In July, 2008, a study done by economic think-tank, ICRIER showed that the proposed CTT would kill the nascent commodity exchanges as commodities are already subject to many other taxes like mandi fee, VAT, CST, excise and octroi duties.

“CTT was not imposed till now but the fear has been lingering on and its abolition reiterates that the government is committed to ensuring more participation in the market. But bold and progressive measures, like permitting banks, MFs, FIIs and introduction of options into commodity market, continues to elude the commodity market,” Anand James, senior analyst, Geojit Comtrade said.

Last year, commodity market players had bitterly opposed the tax, proposed to be implemented on the lines of the Securities Transaction Tax, on the grounds that will impact the participation of arbitrators and small investors and stifle the growth of commodity futures.

“The futures growth of commodity markets will be compromised just for earning an extra Rs 50 to Rs 60 crore,” they argued.

“The abolition of CTT, puts the Indian commodity market ecosystem at par with international exchanges with respect to cost of hedging, thereby fulfilling the government’s vision of making Indian commodity derivative market competitive on a global canvas,” said Anjani Sinha, director MCX. Prices in the commodity futures exchanges didn’t show any appreciable movement as the tax was yet to be implemented.

India’s commodity futures market, comprising of three national exchanges and more than 20 regional bourses, has long been under the scanner of policy makers, on the grounds that futures trading in farm commodities fuels speculative activity, leading to price rise.