Commodity trade may be reduced

The finance ministry is likely to reduce the commodities transaction tax (CTT) rate. The tax, the only new one introduced in the Union Budget 2008-09, is yet to be notified, though it was approved by the Parliament in April this year.

The notification has been held up due to opposition from various quarters, including Agriculture Minister Sharad Pawar and the Prime Minister’s Economic Advisory Council. The latter had asked for the rate to be cut substantially.

CONFIDENCE BOOSTER

CTT RATE stands at 0.017 per cent (Rs 17 per Rs 100,000) on commodity futures and options, while it is 0.125 per cent (Rs 125 per Rs 100,000) on options exercised

ECONOMIC ADVISORY Council says prescribed rate of tax is too high for a nascent market and fears that commodity trade may shift to overseas markets

INDIA’S COMMODITY exchanges and regulator have been opposing the levy on the ground that it will increase the transaction cost by over 800 per cent

The CTT rate stands at 0.017 per cent (Rs 17 per Rs 100,000) on commodity futures and options, while it is 0.125 per cent (Rs 125 per Rs 100,000) on options exercised.

The Economic Advisory Council (EAC) is of the view that the prescribed rate of tax is too high for a nascent market and fears that commodity trade may shift to overseas markets.

India’s commodity exchanges and the regulator — the Forward Markets Commission — have been opposing the levy on the ground that it will increase the transaction cost by over 800 per cent.

“It is unlikely that CTT will come into effect at the current rate. It is likely to be lowered or its implementation will be deferred,” said a finance ministry official.

In order to accommodate the demands, the finance ministry may cut the tax rate on commodity transactions, sources said. This would be done through an ordinance, they added.

A final decision in this regard is likely to be taken by the first week of October, when the ban on trading of four commodities – soyoil, potato, chana and rubber – will expire. The ban was imposed to cool rising prices.

A fair idea of the kharif crop production this year will be known by October. The finance ministry is hopeful that a good monsoon will have a positive impact and lower prices of food articles.

On the other hand, commodity market players have demanded that more time be given to the market to mature before the tax is imposed.

“CTT should not be levied, at least in the current year. It may impact volume of commodity transactions,” said Nirmal K Aggarwal, member, Multi Commodity Exchange.