Commodity body seeks cut in transaction tax to boost volumes

Our Bureau Mumbai | Updated on January 12, 2021 Published on January 12, 2021

Move can help lift revenues to ₹7,000 crore/ year

The Commodity Participants Association of India (CPAI) has pushed for Commodity Transaction Tax (CTT) to be at 0.005 per cent from 0.01 per cent to boost volumes and treat it as tax paid under Section 80E.

In its pre-Budget memorandum to the Finance Minister, the Association said the reduction in CTT will be a win-win situation with large revenue gain for the government due to increase in market volumes, creating jobs in the financial sector and bringing back volumes shifted to overseas countries.

It will reduce the cost-to-trade and bid-ask, increase liquidity, save foreign exchange on brokerage and margin money sent abroad, besides pushing up GST collection from financial services. The body said that revenue foregone for the government by providing CTT set-off towards tax liability under Section 88E will be minimal because the benefit cannot be taken by such entities as mutual funds which are tax-exempt, FIIs, retail and wholesale investors claiming capital gains and entities with loss or inadequate profit.

Tax rates

It can be only be claimed by entities under business income, who even after the set-off, will pay effective tax at full slab rates of 34.94 per cent (LLP) and 25 per cent for companies.

If they incur loss or inadequate profits, their effective tax rates will be higher. Unused CTT cannot be refunded or carried forward to next year, it said.

When introduced in 2013, CTT was treated as an expense instead of tax and commodity derivative volumes plunged 60 per cent, while the government collected only ₹667 crore. The move pushed up the cost of trade in 4 to 15 times than prevailing in US and China.

Trading on exchange is price-elastic and cost-sensitive and hence a slight rationalisation of rates along with proper treatment under Section 88E will result in much higher CTT collections, with growth in market infra being a bigger bonus, said the CPAI.

By rationalising Securities Transaction Tax and CTT and restoring Section 88E, India can increase revenue collection to ₹7,000 crore a year, create additional jobs in the financial services sector and encourage companies to hedge commodities and currencies on Indian exchanges, it said.

A fall in impact cost will increase market liquidity and provide extra revenue from GST on exchange charges and financial services, besides more revenue from stamp duty on higher market transactions, it added.

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Published on January 12, 2021
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