Commodity broking firms are considering shifting their registered offices out of Maharashtra, due to the proposed raising of stamp duty by the state government.
The Congress-led government has proposed a 400 per cent increase in the stamp duty on commodity transactions, in the Budget for 2011-12 announced yesterday. If approved, the stamp duty will be raised to Rs 500 from the existing Rs 100 for every Rs 1 crore of transaction.
“The increase in transaction cost might force brokerages to shift their registered office else where. However, the decision will also depend upon their client profile. The move will also be negative on overall commodity futures trading. Turnover on commodity exchanges may initially decline as a consequence of stamp duty increase,” said Naveen Mathur, associate director (commodities and currencies), Angel Broking.
Considering a Rs 200 exchange fee, the trading cost for clients will be working out at Rs 300 for every Rs 1 crore of transaction in Maharashtra. With the proposed levy, the trading cost will go up to Rs 700 for every Rs 1 crore of transaction, a rise of 133 per cent.
“The sudden spurt will drive traders out of Maharashtra to nearby locations, for sure. Since stamp duty is paid to the state in which the head office is registered with, chances are that the registered offices of many small, medium and large-size broking firms will be shifted to nearby states like Gujarat, where the duty is near zero,” said Lamon Rutten, managing director of India’s largest commodity exchange, the Multi Commodity Exchange (MCX).
Adding: “The increase in cost of transaction will promote dabba trading, which is illegal. More, it will lead to migration of business to other neighbouring states, at a time when MCX is trying to help the state become a hub for international financial business. I am sure our chief minister and finance minister will review the decision.”
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With a little over 300 member-brokers registered and 30,000 people employed in the state, Maharashtra constitutes around 25 per cent of total turnover generated on derivatives exchanges. Last calendar year, the total turnover by all exchanges put together was recorded at Rs 107 lakh crore.
Supporting Rutten’s view, Dilip Bhatia, chief executive officer of Kotak-anchored Ace Derivatives & Commodity Exchange, said: “With brokers tending to move away from the state, the local government may even lose the existing stamp duty collection to other states.”
Gujarat, Delhi and West Bengal are going to gain much, due to their lower stamp duty. Other than Daman and Silvassa, where the duty is nil, Gujarat charges nearly nil. West Bengal’s is also nil. These places are all likely to get part of the shift from Maharashtra.
Delhi had taken a similar move to raise stamp duty from zero to Rs 130 per Rs 1 crore of transactions a couple of years ago, which resulted in a majority of commodity trading business shifting, primarily to Gurgaon in Haryana.
“Arbitrageurs registered in Maharashtra will not be able to compete with their counterparts in other states due to this obvious factor. Hence, brokerage firms that tend to service their customers efficiently will surely opt for cheaper business options. I think brokerages will look for alternative cheaper business destinations,” said Preeti Gupta, executive director, Anand Rathi Commodities.