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Commodity transaction tax likely to be introduced in Budget Session Read more at:
February, 20th 2013

Despite strong lobbying by commodity traders, the Finance Ministry is likely to go ahead with its plan to levy a commodity transaction tax (CTT) of 0.018-0.125 per cent on all non-agro commodity trades such as gold, silver, non-ferrous metals and crude oil in the forthcoming Budget .

CCT will be similar to the securities transaction tax (STT), levied on the purchase and sale of equities in the stock market. So far, commodity transactions have been exempted from any levy.

"In the last few days, there have been discussions with banks, stock and commodity exchanges, Consumer Affairs Ministry and other stake holders. However, the government is planning to go ahead with CTT," a senior Finance Ministry official told Mail Today.

"CTT is expected to be to the tune of 0.018-0.125 per cent. While agricultural commodities will be exempted from CTT, non-farm commodities such as gold, silver and non-ferrous metals such as copper and energy products like crude oil and natural gas will be taxed," the official further said.

Currently, STT of 0.1-0.025 per cent is levied on stock market transactions. The tax has led many investors to shift to commodity exchanges as there is no transaction charges levied on commodity trading.

The Finance Ministry's logic is that levying CTT will not only add to revenue but also create a level playing field between the stock investor and the commodity exchange investor.

"As per the ministry estimate, it will add about Rs.4,500 crore to the exchequer but more than revenue it is aimed at bringing transparency in the commodity exchange market," the official added.

Paying the tax will leave a paper trail of such transactions, which would help keep track of black money.

Finance Minister P. Chidambaram had already met representatives of various commodity exchanges in Mumbai last week and sounded them on the move. Even banks and stock exchanges in their meeting with Chidambaram have said that either the government should impose CTT or do away with STT so that there is a level playing field.

However, commodity exchanges have warned that this will be counterproductive. Levying CTT will lower trade volumes and not contribute much to the government exchequer, they have said. "Rather contrary to the government's expectation, levying CTT will boomerang, which may lead to loss in revenue," National Multi-Commodity Exchange vice-president (business development, north) M.K. Khattar said on Tuesday. "The claims made by stock exchanges are not correct. Volumes in equity trading are not getting shifted to commodity market. As per the data, shifting of volumes is happening from cash and futures segment of equity market to equity options," Khattar added.

Initially, CTT was proposed by Chidambaram in the 2008-09 Budget. According to plan, the proposal was to levy 0.017 per cent tax on commodity derivatives trade on the lines of STT. But the proposal was not implemented due to the slowdown and strong opposition from the food processing and consumer affairs ministry and commodity exchanges.

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