Check how expensive is commodities trading in India vs US, China; traders suggest how to cut costs

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Published: January 28, 2020 6:31:15 PM

The association wants that the government should remove or cut down the rates of STT and CTT in order to boost trading volumes.

Presently, Indian markets have very high transaction costs by the way of CTT, GST, stamp duty, exchange charges, besides levy of applicable capital gain tax.Presently, Indian markets have very high transaction costs by the way of CTT, GST, stamp duty, exchange charges, besides levy of applicable capital gain tax. (Representative image)

The Commodity Participants Association of India (CPAI) has urged the government to address high cost of trading in the Indian markets, which is leading to drastic drop in volume and liquidity.

In a presentation made to the Finance Ministry, CPAI said the cost of executing a transaction in India in various asset classes is 4 to 19 times the cost of executing a comparable transaction in the US, China and Singapore due to high incidence of Securities Transaction Tax (STT) and Commodities Transaction Tax (CTT).

The association wants that the government should remove or cut down the rates of STT and CTT in order to boost trading volumes.

It has requested the government to allow STT as non-refundable tax paid upfront or rebate under section 88 E instead of expense as was the treatment earlier till 2008. Similarly, CTT should be treated as tax paid and not as a expense.

“The high cost of trading has led to steep fall in volumes affected liquidity, increased impact cost and is dampener for hedgers,” said CPAI, the apex pan-India association of participants in commodity exchanges and commodity derivative segments.

Presently, Indian markets have very high transaction costs by the way of CTT, GST, stamp duty, exchange charges, besides levy of applicable capital gain tax.

Since the introduction of CTT in 2013, the volume on commodity markets have come down from Rs 69,449 crore per day in 2011-12 to Rs 27,291 crore a day in 2018-19, registering a plunge of 61 per cent in volume.

“To make India a price setter for most of the commodities being produced or consumed in India, we have to keep our transaction cost low to be a price setter in the world markets we need high volume with a low impact cost only then the large hedgers or traders will be attracted,” the association added.

STT is a tax on share market transactions and gets automatically deducted upfront based on a person’s turnover irrespective of profit or loss. CTT is a tax similar to STT, levied on transactions done on the domestic commodity derivatives exchanges.

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