Transaction tax on non-agri futures trade introduced

In a major set back to commodity exchanges, Finance Minister Chidambarm today proposed a transaction tax of 0.01 per cent on non-agri futures traded on the bourses.

The commodity transaction tax (CTT), which is in similar lines of Securities  Transaction tax (STT), would work out to Rs 10 for transaction worth Rs one lakh.

"There is no distinction between derivative trading in the securities markets and derivative trading in commodities markets. Only the underlying asset is different. It is the time to introduce commodity transaction tax in a limited way," Chidambaram said while presenting Budget for the 2013-14 fiscal in the Lok Sabha.

"Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as in equity futures, that is at 0.01 per cent from the price of the trade," he said.

However, Chidambaram said trading in commodity derivatives would not be considered as speculative transaction and hence CTT would be allowed as deduction if the income from such transaction forms part of the business income.

Reacting to the development, the country's largest commodity bourse MCX Managing Director and Chief Executive Officer Shreekant Javalgekar said, "CTT on selected items is not good. It will increase the hedging cost by 310 per cent. It will reduce our global competitiveness."

He said the government has "targeted small segments and not currency futures." Much of non-agricultural items such as gold and silver are traded on the MCX.

It may be recalled that Chidambaram had announced CTT of 0.017 per cent while presenting the 2008-09 Budget. However, the proposal was not operationalised due to apprehensions aired

by then Consumer Affairs Minister Sharad Pawar and PMEAC.

Amid speculation that the Finance Minister would impose CTT in the 2013-14 Budget to curb gold demand in view of high current account deficit, commodity exchanges and brokerage firms had made several representations opposing such a tax saying it will adversely impact the nascent market.

"With the imposition of CTT, the turnover will come down. It will negatively impact the market, especially MCX where maximum of non-agricultural commodities are traded," brokerage firm SMC Comtrade Chairman and Manging Director D K Aggarwal told PTI.

However, he said that the Finance Minister has provided some respite to traders by treating CTT not as speculative trade but as business profit/loss.

The turnover from futures trade in farm items contributed only 13 per cent of the total Rs 144.17 lakh crore during first 10 months of the current fiscal. The remaining 87 per cent business came from bullion, metals and energy items.