Around 95% of commodity futures business to attract CTT

During 2012-13, all registered commexes witnessed total accumulative turnover of Rs 17,046,840.09 crore as against Rs 18,126,103.78 crore in previous financial year

With all processed agri commodities being classified as “non-agri”, the commodity transaction tax (CTT) is set to cover over 95% of business of commodity exchanges.

During the financial year 2012-13, all registered commodity exchanges witnessed a total accumulative turnover of Rs 17,046,840.09 crore as against Rs 18,126,103.78 crore in the previous financial year. Of which around 95% comes from non-agri commodities. Effective at 0.01% from July 1, the tax would add to around Rs 1500 crore in the government’s kitty in the current financial year.

The notification has said that processed agri commodities will attract CTT but kapas khali (cottonseed oilcake) and soymeal have been exempted from tax.

The notification has said that processed agri commodities will attract CTT but kapas khali (cottonseed oilcake) and soymeal have been exempted from tax. However  the list of commodities exempted contribute hardly 5 per cent to the exchanges’ turnover.

All processed commodities including refined soy oil, guar gum, sugar, coffee etc have been categories as “non-agri” which would attract CTT effective July 1. This means CTT will be applicable on 95 per cent of the commodities and business on the exchanges.

“Without processing cotton oilseed it is impossible to obtain cake. Hence, classifying cotton oilcake as agri commodity is unfair. Similarly, rubber and coffee are purely agri commodities. But, by the government definition, they are non – agri and therefore, taxed. This is not understandable,” said Anil Mishra, managing director of Ahmedabad-based National Multi Commodity Exchange (NMCE).

Commodity exchanges have not listed “sugarcane” for hedging being the raw material purely farmers driven. But, it would be impossible to assume hedging in sugar without sugarcane. Hence, CTT would drive actual farmers and mills away from hedging in sugar, he added.

Assuming the impact would be minimal, Samir Shah, managing director – Incharge of National Commodity & Derivatives Exchange (NCDEX), India’s largest agri centric commodity derivatives trading platform, said, “We do see some agri products missing in this list. We will take this up separately with the authorities in due course.”

“Generally for our products, we see limited impact as our focus has been on value chain participants and hedgers and these participants are more long term players”.

A senior official from Ace Derivatives & Commodity Exchange, the Kotak anchored commodity exchange, termed the classification as “unfair.”

The levy will attract Rs 10 as tax on every Rs 1,00,000 business executed on the exchange. The levy is expected to drive commodity exchange volume to unorganized markets where the government has no means to collect tax.

“CTT will drive away volumes to 'dabba' market and overseas locations as it would shoot up transaction cost and lead to higher volatility and lower trading activity,” Ajay Kedia, Managing Director, Kedia Commodity Comtrade, a Mumbai-based broking firm.