Fearing that any transaction tax on commodity trade could push over 90 per cent of the business volumes to illegal ‘dabba’ trading, the country’s leading bourses have warned any such levy would be a retrograde step.

The overall commodity derivative trade in the country is estimated to clock a total volume of Rs 170 lakh crore in the current fiscal ending next month, out of which more than Rs 150 lakh crore could shift to ‘dabba’ market, the exchanges fear.

‘Dabba’ trading is a commonly used term for off-market, informal trade activities, which are illegal in nature and where punters indulge in speculative trading to make quick money without paying any taxes or other transaction fees.

“The imposition of a Commodity Transaction Tax (CTT) will have a retrograde effect on the commodity futures market.

Almost all the business will be lost and trading will shift to dabba,” MCX Chairman Mr Venkat Chary told PTI.

While there has been no official word so far, various reports have said the government could propose the CTT when it announces Budget proposals for 2012-13 next month.

Stock market trades in the country are subjected to a Securities Transaction Tax (STT), but no such levy is imposed in the commodity derivatives trade. The government had proposed a CTT in 2008, but it was not notified after stiff opposition from various quarters.

Top officials of various commodity exchanges disagreed with the contention that business volumes were shifting from stocks to commodity due to the STT on equity trading.

“Contrary to the claims made by stock exchanges, volumes in equity trading are not getting shifted to commodity market. In fact shifting of volumes is happening from cash and futures segment of equity market to the equity options,” National Multi-Commodity Exchange’s Vice President (Business Development - North) Mr M K Khattar said.

Other commodity exchanges like ICEX and NCDEX have also expressed fears against any transaction tax on commodity trade, while industry chambers like CII and FICCI have also opposed any such levy.

MCX’s Deputy Managing Director P K Singhal said that commodity derivatives market was still in a nascent stage, as against a relatively much more developed stock market, and any transaction tax would kill the market.

Chary said that the commodity trading was currently in a growing phase, but any transaction tax would kill the market.

The commodity market is growing at an annual growth rate of 30-40 per cent ever since the futures trading in commodities was allowed in 2003.

The Consumer Affairs Ministry, which is the administrative department for commodity market, has also opposed the idea of CTT.

(This article was published on February 12, 2012)
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