Commodity exchanges reel under CTT impact

As predicted by Commodity Online immediately after the Union Budget presentation, the commodity transaction tax (CTT) proposal has started taking its toll on commodity exchanges.

According to exchange officials, the turnover of commodity bourses has dropped sharply on transaction tax proposal and reports that the government may ban Futures trading of more commodities have sprouted.

The turnover may get eroded by another 20-30% once CTT comes into effect.

The daily volume of trade on MCX, which was at Rs 16,726.03 crore (Rs 167.26 billion) on February 28, a day before Budget 2008 was presented, has come down to Rs 12,448.52 crore (Rs 124.48 billion) as on April 11.

In NCDEX, the volume dropped to Rs 1,939.43 crore (Rs 19.39 billion) from Rs 2,665.54 crore (Rs 26.65 billion) in the same period.

The CTT of 0.017% was proposed in the Union Budget by finance minister while presenting the Budget before the Parliament.

Although the Budget is yet to be passed in the Parliament, all eyes are on the date when the CTT would come into effect.

Among the first to react to the CTT proposal on Budget day was Jignesh Shah, Managing Director of Multi-Commodity Exchange of India (MCX).

The commodities markets are global assets and trade flows to most efficient markets, which have least cost of trading. With the addition of commodities trading tax, Indian market will become unusable for risk management.

"The Budget has added an incidence of 12 per cent service charge and Rs 17 per lakh for commodities trading, which will increase the cost by more than 800 per cent. This taxation was introduced in securities market with attendant benefit of long-term capital gains and allowing Futures income loss to be treated as normal business income loss," Jignesh Shah said reacting to the CTT immediately after the Budget presentation.

Market regulator Forward Markets Commission also came out with its strong opposition to CTT within 48 hours of the Budget presentation.

"CTT will have an adverse impact on the Futures markets. It would virtually kill the growth story of 23 commodity exchanges in the country," B C Khatua, Chairman of FMC, said.

Later, he said CTT was unique and it has not been imposed on any Futures market anywhere in the world.

"We have already conveyed our concerns to the finance ministry and agriculture ministry. We still stick to the stand that it is harmful for the growth of India's nascent Futures market in the country," Khatua said.