Apex industry associations have opposed the possible imposition of a commodities transaction tax (CTT) in the forthcoming budget for fiscal 2012-13.
There is speculation that the government is planning to cut securities transaction tax (STT) to boost the stock markets and extend its scope to other asset trading classes such as commodities. There is a view that this may be in the offing to mop up revenues and also to check speculation in the commodity markets. Stock markets are seeking a STT cut which they claim is high and required to boost retail sentiment.
According to the Federation of Indian Chambers of Commerce & Industry (FICCI), commodity derivatives reflect a global underlying asset and there should be parity between the cost of transaction on the Indian and global exchanges. It said imposition of CTT would escalate the cost of transactions on Indian exchanges resulting in a volume shift to international exchanges and grey markets.
The government had introduced a commodities transaction tax in 2009 but later abolished the levy. Industry experts argue that both equities and commodities as asset classes cannot be treated in a similar manner as they are different. Stock derivatives are based on local assets whereas commodity derivatives are based on global assets such as gold, soya, cotton and others. If an investor trades in an Indian stock, the trade has to be done on an Indian exchange but a trader in gold futures can trade anywhere depending on the cost of the transaction.
The Associated Chambers of Commerce & Industry of Indiab (Assocham) has represented that there should not be commodities transaction tax or any such transaction tax on equity derivatives and that they be treated in the same was as other hedging instruments such as interest rate and currency derivatives.
FICCI has also pointed out that a high recurring cost in the form of commodities transaction tax would also discourage farmers participation in the commodity markets, which are considered a better risk mitigation instrument.
Source : tribuneindia.com