FMC calls for withdrawal of CTT

BUDGET 2008-09: IMPACT

The Forward Markets Commission (FMC) is expected to take up the matter of introduction of commodity transaction tax (CTT) with the government, a top FMC official said.

Finance Minister P Chidambaram had proposed a CTT in the Budget on the lines of the securities transaction tax.

"The commodities market is different from the equity market, which is for investment. The introduction of CTT is, therefore, totally unjustified," FMC Chairman B C Khatua said yesterday.

The transaction tax will make Indian markets unusable for risk management. The budget has added an incidence of 12 per cent service charge and Rs 17 per lakh for commodities trading, which will increase the cost by over 800 per cent.

"We will take up the matter with the government and try to resolve the issue before April 1," Khatua said, adding the FMC had received representations from exchange users, exporters, importers and farm producers over the issue.

"CTT will have an adverse impact on the futures markets. It would virtually kill the growth story of 23 commodity exchanges in the country," Khatua said.

"Introducing CTT on a four-year-old commodity market, which is just one sixth of the size of the stock market is not fair," he said, adding that this might encourage investors to get into the grey market.

Without option trading, the commodity market could not be termed as a mature market, he said.

In the absence of mutual funds and banks' participation, today only retail players and corporates hedge on the commodity exchanges, Khatua said.