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| FMC seeks power on a par with SEBI |
| Dilip Kumar Jha / Mumbai Jun 16, 2009, 00:28 IST |
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The commodity markets regulator, Forward Markets Commission (FMC), has renewed its demand for powers on a par with the equity markets regulator, Securities & Exchange Board of India (SEBI).
Despite commodities, especially agricultural ones being critical to deal with because of varying quality issues, unlike equity markets where delivery is handled in the form of uniform share certificates, the regulator is much like “a fish in the aquarium” with limited powers. Although, it has been calling for devolution of powers for itself to deal with any unfortunate circumstances under the Forward Contract (Regulation) Act, 1952. (FCRA), mala fide traders have succeeded in taking undue advantage of the regulator’s limited powers.
According to knowledgeable sources, the regulator has suggested amendments to the FCRA which will not only confer additional powers on it but also help introduce more instruments like index-based trading and options which always go hand-in-hand with futures.
The FMC has expanded the list of demands this year by incorporating reduction in central value added tax (Cenvat) from 8 per cent to 5 per cent. According to industry sources, the Cenvat does not let commodity exchanges to launch delivery-based contracts which will attract more genuine participants. Elaborating the importance of such reduction, Ashok Bafna, director of the Bombay Metal Exchange (BME) said, “metals’ volume is several times higher than the actual consumption in the country. This can be categorised only speculation and not the real price discovery.”
The regulator has also recommended the government to remove provision of commodities transaction tax (CTT) from the Act which was incorporated in the last year’s Budget. It argued that such levy is only applied in Taiwan where commodities and securities are traded on single platform and the former is traded in very thin quantity. In Taiwan, such tax is levied parallelly that resulted into poor performance of commodity markets.
Markets like India where futures in commodities are introduced after 40 years in 2003 and have gained momentum rapidly, CTT may discourage traders from active participation.
Commodity exchanges and supporting agricultural infrastructure including storage, warehousing and quality testing laboratories in the supply chain of agricultural commodities are critical to the agricultural ecosystem. Hence, infrastructure status should be granted under the Income Tax Act to commodity exchanges and allied agricultural infrastructure facilities for developing the required infrastructure for allied services rapidly.
In line with equity market, participants on comexes also book losses in case of decline in commodity prices. But, while the government has made a provision for equity market where loss-making traders can offset the amount through other means of profits, there has been no similar provisions for commodity market participants.
The payment of commission and brokerage with respect to transactions in commodity derivative exchanges is subject to a tax deduction at source (TDS) of 10 per cent. The section exempts securities brokerage or commission for the purpose of deduction of tax at source.
This exemption should be extended to brokers engaged in forward contracts ô commodity derivative trading also.
These hindrances are affecting the commodity market participants very badly that if addressed, will surely boost traders’ sentiment enormously.
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