'Exempt commodity derivatives from transaction tax'
PTI: New Delhi, Dec 27 2012, 16:13 IST
"All three hedging instrument – currency, commodity and interest rate derivatives – should not have transaction taxes as this would make markets narrow, shallow and illiquid, hurting price discovery as well as risk management,"
Any increase in transaction tax will lead to shifting of volumes to either overseas exchanges or to the domestic illegal market called 'dabba' trading market, it said.
Seeking commodities to be exempted from any transaction tax, industry chamber CII argued that a tax on commodity trade will dissuade those who desire to hedge their risks. "This in turn, would reduce market liquidity through reducing volumes and increasing bi-ask spreads."
"Some of the studies have shown that imposition of CTT may not lead to a significant increase in revenue for the government," CII added.
The CTT of 0.017 per cent on commodity derivatives was announced in the 2008-09 Budget, but was not operationalised.
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