Sub Heading : Government ends the ambiguity on imposition of service tax
The government may have finally put the service tax issue to rest, but the spectre of the commodity transaction tax (CTT) is still haunting commodities futures trading.
The government went against tradition to enforce the service tax from May 16, instead of April 1. Now, with CTT expected to come into effect from this month, traders are keeping their fingers crossed. Generally, announcements made by the finance minister in the annual Budget come into effect from April 1. However, finance minister P Chidambaram brought commodities futures trading under the purview of the Budget, just this year.
The proposal evoked criticism, with experts saying it was not the appropriate time to impose tax. This opposition resulted in a delay in the imposition of the service tax.
"Representatives from the Forward Market Commission (FMC), National Commodity and Derivative Exchange (NCDEX) and the Multi Commodity Exchange (MCX) met finance minister, requesting him not to impose service tax and CTT. They argued that with futures trading in India still at a nascent stage, the introduction of such taxes would hamper its growth," said Chintan Modi, head, commodity research team, India Infoline.
But May brought no respite to the commodity market.
A circular from the finance ministry released on May 10 said that while services provided by commodity exchanges were not covered under service tax by the Finance Act, 2008, service tax would be applicable with effect from May 16, 2008. Accordingly, service tax of 12.36% will be collected on charges levied by the exchanges from May 16. The invoice for charges will contain the service tax registration number, serial number, description of services, etc., to enable members to claim CENVAT credit. Apart from service tax, customers would also have to pay brokerage, transaction tax, and stamp duty.