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Turnover tax likely to push up commodity trading costs
March, 04th 2008

The imposition of commodity turnover tax and service tax on exchange levy in commodity futures trading is likely push up trading cost to 47 per cent from 22 per cent of their margins. Investors feel the additional burden would more or less wipe out their margin in trade.

The Finance Minister has introduced commodity transaction tax and 12 per cent service tax on exchange levy besides education cess on the tax.

This has come when there was an all round expectation for lifting the ban on futures trading in wheat, rice, urad and tur.

Insiders say, earlier if one lot (1 kg) of gold cost Rs 12 lakh, expenses incurred for selling on the exchange were brokerage (0.03 per cent) of Rs 360, service tax on brokerage Rs 43.20, 3 per cent education cess of at Rs 1.296, stamp duty (Rs 1 per lakh) at Rs 12, exchange levy of 0.004 per cent (based on turnover, more the turnover lesser the levy) at Rs 48, totalling Rs 465.

From April, an additional cost include service tax on exchange levy at Rs 5.76, education cess of 3 per cent on service tax at Rs 0.1728, commodity transaction tax (CTT) of 0.017 per cent on turnover at Rs 204, adding up to Rs 674.43 or Rs 210 more. Similarly, the buyer has to pay a CTT of 0.125 per cent.

The increase in incidental cost will wipe out whatever we can save by hedging on the commodity futures exchanges. Trading in agriculture commodity sector to be hit more as the sentiments are already weak due to the ban on a few commodities, said Mr Venkatesh Rao, a Mumbai-based investor.

Mr B.C. Khatua, Chairman, Forward Markets Commission, said the introduction of CTT will adversely affect the commodity futures market. Commodity markets are just four years old, the Government should have given us some more time before introducing this tax, he said.

Mr Sushil Sinha, Assistant General Manager, Karvy Commodities, said incidental cost on hedgers will be more pronounced as their exposures are bigger. Investor margins may also shrink.

Suresh P. Iyengar

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