With the buzz on imposition of commodity transaction tax (CTT) in the forthcoming Budget getting louder, Forward Markets Commission Chairman Ramesh Abhishek feels the market should be given more time to absorb such a levy.
“The commodity market performs the crucial role of providing the industry with a transparent hedging platform. It cannot be compared with any other market where such a levy is imposed currently,” Abhishek told Business Line in an interaction.
Investors in stock market attract a similar levy – Securities Transaction Tax – on all their transactions. However, unlike stock market, financial institutions and banks are not allowed to trade in commodities.
All the five national exchanges have made representation to FMC listing out the drawbacks on levy of CTT. The views of exchanges have been forwarded to the Ministry along with the FMC opinion, he said.
An increase in cost of trading will push hedgers from the exchange to illegal (dabba) trading system which already costs a fraction of what is charged in the online trading. Imposing CTT will only drive away liquidity from online exchange to dabba trading which neither collects any tax nor regulated, he said.
Exchanges have been conducting series of awareness programmes in rural areas in order to attract farmer participation. It is also exploring the possibility of bringing in aggregators to help farmers tap the commodity market efficiently.
TURNOVER DIPS
Commodity exchanges have raised apprehension against the new levy particularly when the turnover on five online exchanges has dipped nearly six per cent in December to Rs 12,962,448 crore. The dip in turnover was largely due to fall in gold prices. This apart, the interest of speculators in commodity markets has been deterred due to drop in price volatility.
Price signal
Besides hedgers, the online platform also helps farmers to get better prices for their produce by giving them price signals, said Abhishek. The price co-relation between the spot and futures markets have improved to a great extend with the implementation of staggered delivery system in agriculture commodities.
The new levy, if imposed, will distort the price signal even as efficiency of spot markets across the country suffer due to different tax structure followed by State Governments, he said. Last month, the top honchos of five commodity exchanges came together to oppose CTT.