Higher CTT unsuitable, says Icrier

A higher transaction tax is likely to defeat the very purpose of commodity markets by forcing farmers and hedgers to exit due to greater cost, an Icrier report said.

“Any increase in transaction tax, as proposed, would increase the transaction cost and may keep farmers and hedgers out of the market, an outcome which would fail to achieve the objectives of the futures markets,” it said.

The study, released by economic think tank Icrier last week, said international experience shows trading volume goes down either due to increase or imposition of transaction tax. Further, no other major futures trading markets have CTT.

 

The report pointed out a negative relation between high transaction cost and trading volume for five selected commodities — gold, copper, crude, soyaoil and chana — and said higher the cost, greater the volatility.