Amidst opposition from traders that Commodity Transaction Tax (CTT) may encourage illegal trading, the government appears unlikely to notify the leource said, adding that consumer affairs ministry has persuaded the finance ministry not to go ahead with CTT.

Parliament has already passed the 2008-09 Budget, where one of the proposals is to levy a commodity transaction tax of 0.017%. However, a notification is yet to be issued.

According to sources, CTT does not exist anywhere in the world, except Taiwan.

Even in Taiwan, commodity futures trading is being conducted through the stock exchange, where commodities contribute only 0.03 per cent in the turnover of the exchange, the source pointed out.

When the 99.9% of the world markets do not have CTT, India does not need such a tax, the source said.
Experts pointed out that in India, taxes on commodities are the highest compared to other goods. In fact, after income tax,
bulk of revenue comes from taxes on commodities.

Customs duty, sales tax, excise duty, octroi and many other local levies are imposed on commodities in the country, which add on to the cost of the product that consumers pay.

Further, CTT cannot be compared with securities transaction tax (STT). Commodities are not shares, they said, adding that any tax on commodities would be a bearing on their prices.

If CTT is imposed, arbitragers will run away from the marketarnings would go towards tax payment, the experts said. Arbitrage trading literally means risk free profit which is the bread-butter of commodity traders.

A study conducted by industry body CII has also made a similar observation. Within seven days of the imposition of CTT, trading volumes on the three national exchanges and 19 regional exchanges will dip by up to 59%, the study noted.