FinMin arm mulls commodity trading tax

Senior officials in the Central Board of Direct Taxes (CBDT) feel a tax should be levied on all transactions on the country's 23 commodity exchanges.

They say the Commodity Transaction Tax will be a natural corollary to the Securities Transaction Tax (STT), which is levied on all transactions on domestic stock exchanges.

STT is levied on the value of taxable securities transactions since October 1, 2004. The rate varies from 0.025 per cent to 0.25 per cent per transaction.

With equity markets booming, STT collections shot up from Rs 589 crore in 2004-05 to Rs 2,559 crore in 2005-06. The collections were Rs 4,648 crore in 2006-07. Till November 15, the collections totalled Rs 4,924 crore, up 69 per cent from the Rs 2,908 crore in the same period last fiscal.

CBDT officials are hoping that a proposal for levying CTT finds its way into the next year's Budget. They add that implementation of the levy will generate significant additional revenue for the government.

The combined turnover of the 23 commodity exchanges during April-September stood at a whopping Rs 17,55,165 crore or around $439 billion. Assuming a similar tax rate as the STT, the revenue mop-up could be between Rs 438 crore and Rs 4,387 crore.

"A draft paper on levying CTT was submitted to the government five years ago. Now is the right time to look at it," said a CBDT official. Currently, about 4 per cent of all transactions on the commodity exchanges are delivery-based. Other deal are speculative, the official said.

The industry, however, is not overly enthused. "The government has already banned some agricultural commodities from trading on the exchanges. A tax on commodity transactions will affect volumes and send a wrong signal to traders and investors," said a commodity market expert.

"Ultimately, the burden of the tax will be on investors in agriculture commodities. The tax will also put pressure on the agriculture sector and prices," said Nirmal K Aggarwal, member, Multi Commodity Exchange of India (MCX).

India's top commodity exchange with 70 per cent market share in the total commodity derivatives trading volume.

"The government should hold open consultations with all stakeholders before such a tax is levied", Aggarwal said, adding that growth in commodity market trading had slowed over the past few years.