The Union Budget 2013-14 presented on Thursday by Finance Minister P. Chidambaram may have deeply disappointed many commodity market participants – both physical and derivatives – who nursed high hopes that their hectic lobbying will pay-off.

Yet, the Finance Minister has done a fine balancing act by attempting to raise revenue even while ensuring that fiscal imposts do not raise inflationary pressures.

For the commodity market, the highpoint of the Budget would of course be the levy of commodity transaction tax on derivatives trading.

The tax rate of 0.01 per cent of the transaction value is nominal and translates to Rs 10 for Rs 1,00,000 transaction.

Agricultural commodities have been granted exemption from CTT. The daily turnover of non-agricultural commodities covering mainly gold and silver as well as other metals and energy products on the futures exchanges is about Rs 45,000 crore.

The exchequer will end up earning roughly Rs 4.5 crore for a trading day, which, on an annual basis, will become a sizeable sum of Rs 1,500 crore. Surely, CTT is not merely a revenue measure, but is also an attempt to curb rampant paper trading or speculative transactions (as opposed to hedging) on the futures exchanges.

Levy of CTT will also provide an audit trail, something the market participants have been averse to. As a palliative, it has been clarified that trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transactions forms part of business income.

Rightly so, the FM has exempted agricultural futures from the levy of CTT. Even here, a blanket exemption could have been avoided. Exemption ought to have been restricted to really essential food crops and products (with high weightage in the consumer price index) such as wheat, sugar, soyabean oil, chana and similar items.

On the physical market side, the FM has refused to entertain the strong demand made by the vegetable oil trade and industry for a further hike in customs duty on imported oils such as palm oil.

He has withdrawn the customs duty imposed on export of rice bran extraction.

(This article was published on February 28, 2013)
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