Commodity Participants Association of India (CPAI) has urged Finance Minister Nirmala Sitharaman to either completely abolish the commodities transaction tax (CTT) or reduce the rate in the next Budget. The CPAI has further requested the Finance Minister to implement this suggestion for at least two years.
Pitching this demand in a pre budget meeting, CPAI President Narinder Wadhwa has said the sector (commodities derivatives market), which has zero cost of collection and zero leakage, should not be subjected to a prohibitive tax methodology.
If the government is unwilling to remove CTT, it should reduce the rate and reintroduce Section 88E benefits under income tax law, he added. According to Wadhwa, this move will increase the turnover of commodity exchange, which in turn will bring more revenue to the government.
“More jobs will be created and Indian companies will hedge in the country instead of LME and CME, saving forex,” he added.
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The CPAI has suggested that CTT be made “MODVATABLE” with Direct Income Tax (under Sec 88E), treating it as a tax and not as an expense. It has also said that entities like Mutual Funds will not opt for 88E benefit. Even entities that have registered losses or inadequate profits and foreign institutional investors (FIIs) who claim exemptions under Capital Gains tax will not avail 88E benefit.
If the demand for complete withdrawal of CTT is not acceptable, CPAI has suggested the government to reduce the tax on commodity derivatives based on prices or indices from current 0.01 per cent to 0.005 per cent, and on sale of options in goods from 0.05 per cent to 0.04 per cent.
The association also has sought reduction in CTT on sale of options in goods, where option is exercised resulting in a settlement from 0.125 per cent to 0.10 per cent (paid by purchaser).
According to industry sources, with the introduction of CTT, volumes on MCX dropped 60 per cent from $2,717 billion in 2012 to $901 billion in 2019. On the other hand, though the revenue from CTT has increased to ₹667 crore in 2018-19 from ₹501 crore in 2013-14, it is way below the government’s target of ₹2,000 crore.
“Cost in India is significantly higher than trading similar instruments globally leading to poor volumes, low liquidity and high impact cost,” Wadhwa said.