It's not unusual for stock exchanges to make a case for a removal or a cut in securities transaction tax at this time of the year. Neither is their demand for imposition of a similar tax on the nine year-old commodity futures market. But this time round, with the government desperate to offset its ballooning expenditure, such calls have been combated more vehemently by commodity exchange officials.
The stock exchanges argue that a transaction cost such as STT inhibits growth of their market by leading to a shift in volumes to the commodity exchanges, which do not impose such a levy. Stock exchanges are demanding tax parity to stop the shift to "speculative" trades.
"If you see the volume trends of equity derivatives and commodity futures, equity derivatives have seen a fall in volumes over the past few years, whereas commodity futures markets have seen consistent growth. Both the markets face different costs based on differential taxation and the cost structure is not favourable to equity derivatives," an NSE official told ET.
But commodity exchange officials contest this. They say transaction costs, currently at around Rs 2 per lakh, will jump eight-fold to Rs 16 a lakh if a tax like STT is imposed on commodity futures trades. This will kill the market and shift volumes to the illegal dabba market to bucket shops or dabba markets, where nobody pays margins or taxes.
"Volumes have shifted from the equity and index futures, where STT is charged on contract value, to equity and index options where the levy is imposed on premium, which is much less," said Rajnikant Patel, CEO of Reliance ADA-promoted ICEX.
"How can stock exchanges demand parity when the two markets are so unalike," asked Ahmedabad-based commodity exchange NMCE's chief executive Anil Mishra.
"Our market is used for hedging and stock markets are for investing. Further, even income is treated differently for tax purpose. But since gains or losses from commodity futures trades are treated as speculative, they cannot be offset against business income or loss."
A BSE spokesperson said, "To remove discrimination against the investment in securities markets, it is important to look at removing STT altogether. However, if it is not possible to remove STT, it is suggested to levy a tax similar to STT imposed on transaction in all organised markets except for spot markets in agricultural commodities, which need not be taxed given their importance to Indian economy."