Budget 2016: In order to revitalise commodity trading in India, experts and traders are demanding reduction in commodities transaction tax (CTT) to zero from 0.01 per cent from the Finance Minister Arun Jaitley during his Union Budget speech on Feb 29.
According to market experts, it is expensive to trade in India as compared to international markets. The commodities transaction tax, local state taxes and high cost of physical delivery deter traders and hedgers participating in domestic commodities market.
Former Finance Minister P Chidambaram introduced CTT in commodity futures trading on recognised exchanges in the Union Budget 2013-14. It was then strongly opposed by commodity exchanges, traders, brokers and investors.
In India, more than 80 per cent of the trade volumes take place in bullion, metals and energy and imposition of CTT has resulted in a significant drop in trading volumes in these segments that drives the commodity futures business.
Jayant Manglik, president, retail distribution, Religare Securities, said, “Trading members are expecting that the CTT will no longer be levied and should be made zero to encourage the markets and to bring back the liquidity and market depth in the commodity futures trading in the country.”
PK Singhal, Jt MD, MCX said, “Non-agricultural commodities should not be subjected to CTT as it is the case with agricultural commodities, as these contracts help SMEs to hedge in rupee denominated contracts in an effective manner on domestic exchanges. Increased cost impaired not only price discovery and market efficiency, but also denied socio-economic benefits to commodity value chain. CTT increased the cost of trading of exchange traded derivatives trading by almost 300 per cent. The rising trading costs has also encouraged migration of financial businesses to offshore centers like Dubai and Singapore, lured by low cost and zero taxes.”
For instance, major jewellery exporters and bullion importers have started hedging their requirements in international exchanges like COMEX (CME Group), while speculative interest in bullion has also getting migrating to exchanges like Dubai Gold & Commodity Exchange (DGCX), which launched gold and silver contracts linked to Indian prices, and moreover, there is no imposition of CTT.