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Service tax on commodity futures — Govt may get Rs 120 cr from broking fees

Dhimant Bhatt

Mumbai , July 13

THE Government is likely to mobilise no less than Rs 120 crore per annum by way of service tax on the amount of broking fees to be charged from commodity brokers.

The commodity brokers who deal in futures trading through various commodity exchanges will be covered by service tax liability proposed in the latest Budget.

At present, futures trading is permitted in all the major commodities including gold, silver, sugar, cotton, coffee, gur, wheat, black pepper, rubber and oilseeds complex (groundnut, soya, mustard and castor seed).

In all, trading takes place in about 78 commodities through 25 recognised exchanges/associations across the country.

In addition to the proposed rate of 10 per cent service tax on brokerage, there will be an education cess at the rate of 2 per cent of the service tax. The tax incidence will, therefore, be 10.20 per cent.

Brokerage charges fixed by major commodity exchanges vary from 0.06 per cent to 0.1 per cent on various commodities for providing services on commodity contracts, trade sources said.

In 2003-04, the aggregate value of commodity futures trade in the country was expected to touch Rs 2,00,000 crore, according to the then Union Minister for Food and Consumer Affairs.

Assuming the same level of trade this fiscal, the total service tax burden will be an estimated Rs 120 crore.

However, futures trading volumes and value both are expected to show a marked rise in 2004-05, generating considerably more than Rs 120 crore revenue for the exchequer.

The value of futures transactions increased from Rs 34,500 crore in 2001-02 to over Rs 1,00,000 crore in 2002-03.

"Levy of even minimum broking charges will result in Rs 1,200 crore as brokerage fees on transactions totalling Rs 2,00,000 crore. A 10.2 per cent tax (10 pc service tax plus 2 pc education cess thereon) would mean a tax burden of around Rs 122 crore on brokers," Mr Madan Sabnavis, Chief Economist of NCDEX, told Business Line.

He projected the tax liability on brokers at about Rs 140 crore in 2004-05, assuming an increase in value of transactions.

Welcoming the levy of service tax, Mr Kailash Gupta, Managing Director, National Multi-Commodity Exchange (NMCE), said he expect the market to benefit from the new impost.

"The burden of service tax on commodity brokers in the sugar futures market will be small as brokerage is Rs 5 per tonne and so, it will not have major impact on our transactions" Mr Himanshu Shah, Chief Executive Officer of Esugarindia Ltd, an online sugar exchange, said.

"The broking charge levied by commodity brokers on their clients is normally 0.1 per cent. The proposed service tax burden on commodity brokers will be roughly about Rs 10 lakh per day (10 per cent of Rs 1 crore) on estimated daily turnover of Rs 1,000 crore on the major commexes of the country," Mr Chirag Shah, Vice-President of Refco Commodities India Pvt Ltd, said.

The Finance Minister has proposed that members of commodity exchanges and associations recognised under the provisions of Forward Contracts (Regulation) Act, 1952 will be liable to pay service tax on the amount of transaction fee charged by them from their clients for providing services in relation to forward contracts, according to a circular issued by the National Commodity and Derivative Exchange (NCDEX) on July 9.

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