The Commodity Participants Association of India has urged the government to reduce the cost of transactions to improve liquidity and make trading on commodity exchanges a profitable affair.
In its pre- Budget submission to Government, CPAI has said the government takes 67 per cent of cost of transaction with commodity transaction tax (CTT), Stamp Duty and GST. About 54 per cent of transaction cost is by way of CTT besides stamp duty and GST on exchange transaction fee and brokerage. The high cost of trading has led to sharp fall in volumes, affected liquidity, increased impact cost and was a dampener for hedgers, it added.
Despite being the best regulated market, the depth in the market is lowest among the global peer and deters efficient discovery of price.
For instance, at single price, market participant can buy just ₹1 crore worth of copper in Indian exchanges while the same in China is ₹47 crore. The average daily volume of copper on MCX in India is ₹1,559 crore while that in China is about 67 times higher at ₹1,04,453 crore.
The overall trading costs in India including CTT, Exchange Fee, Brokerage and GST on Brokerage and Exchange Charges constitute around 60 per cent of gross margin. Cost of trading in India is 4-19 times higher compared to other countries.
Volumes down due to CTT levy
With the levy of CTT since 2013, the volumes on commodity markets have come down 61 per cent from ₹69,449 crore per day to ₹27,291 crore per day.
To top it all, CTT is currently treated as an expense (not as a tax paid) leading to double taxation.
Currently the problem is that after paying CTT, market participants have to further pay normal tax which leads to double taxation rates of 70-80 per cent.
The CPAI has urged government to treat CTT as non-refundable tax paid upfront or rebate under Chapter VIII like section 88 E to avoid double taxation. This will lead to higher volumes, reduce impact cost, increase liquidity and kindle hedgers’ interest.
The government was hoping to collect higher CTT when it was introduced in 2013 based on turnover on exchanges in previous years but now it mops up hardly get ₹500 crore, said CPAI.
Lower transaction cost will substantially increase depth in commodity derivative segment and make India a price setter for most of the commodities being produced/consumed in the country.
To be a price setter in the world markets, India need high volume with a low impact cost with large hedgers and traders participation.
The association has also sought exemption of long term Capital Gains on Securities held for over one year and scrap dividend distribution tax to stop double taxation.