Textile min not in favour of CTT, writes to finmin

Written by Neha Pal | Neha Pal | New Delhi | Updated: Mar 6 2012, 07:30am hrs
Fearing a negative impact of the proposed commodity transaction tax (CTT) on the textile sector, the ministry of textiles has written to the finance ministry to avoid imposing transaction tax on commodity derivative trading. The ministry is of the view that CTT would increase the total transaction cost of futures trading in commodities including cotton and will have a negative impact on the manufacturing sectors like textile industry which has witnessed extreme price volatility in its raw material prices recently.

The finance ministry was reportedly mulling over reopening the old proposal made by the former finance minister P Chidambaram in the 2008-09 Budget to levy a 0.017% tax on commodity derivatives trade (R17 on R1 lakh worth transaction). As FE reported earlier, it is unlikely that CTT will be imposed even on transactions involving non-farm goods as it could potentially undermine the futures segment that helps in price discovery for the benefit of all producers including farmers.

A textile ministry official told FE, The textiles ministry is in talks with the finance ministry regarding the issue of transaction tax on commodity derivative trading. Imposition of transaction tax on commodity derivatives similar to the transaction tax on security markets could be detrimental to the growth of this market.

According to experts, commodity trading is gradually picking up in India and positive impact of such system is yet to percolate.

According to Confederation of Indian Textile Industry (CITI) chairman SV Arumugam, An efficient commodity market is imperative and tax on transactions would be a deterrent in growth. The sagging market conditions and huge debt repayment commitments affects the industrys business confidence badly.

CITI secretary general DK Nair said, Indias cotton economy comprises large number of farmers, ginners, traders, brokers, textile units. The importers and exporters have just started getting the benefits of futures trading but such a move would distort the nascent market. Many of the small players who were not able to participate on overseas exchange for hedging their price-risks are now able to hedge both commodity prices and currency risk by participating in national commodity exchanges.

Discovery of national prices, transparent pricing across the nation, wide price-dissemination, better prices for farmers, standardisation of quality, development of marketing infrastructure like warehouses and financing from banks are some of the major benefits that can accrue to the Indian economy from the development of national commodity

exchanges. The proposal of imposing commodity transaction tax has not been welcomed by the industry chambers including ministries like consumer affairs and industry bodies like Ficci and Assocham. Consumer affairs secretary, Rajiv Aggarwal had said, We are not in favour of imposing commodity transaction tax (CTT).

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.