Commodity market awaits reliefs

Mumbai, Feb. 24: The Union budget might contain some good news for the commodity markets.

Finance minister Arun Jaitley is likely to bring down the commodity transaction tax (CTT) or scrap it altogether.

CTT was introduced by former finance minister P. Chidambaram in the Union budget for 2013-14, which came into force from July 2013.

It essentially is a levy of 0.01 per cent of the transactional value on the seller in the futures trading of various non-farm items.

Initially commodities such as gold, silver, crude oil, base metals and processed farm items came under the purview of CTT.

However, its introduction adversely impacted trading volumes, which took a knock of over 40 per cent. According to a note from Religare, more than 80 per cent of trade volumes in the domestic markets takes place in bullion, metals and energy and the imposition of CTT has resulted in a major drop in turnover at the country’s commodity exchanges.

According to Forwards Market Commission (FMC) data, the cumulative value of trades fell to Rs 53.92 lakh crore in the April-Feburary period of this fiscal from Rs 92.05 lakh crore in the same period a year ago, a drop of over 41 per cent.

This is because, unlike stocks or agricultural commodities, the daily movement in these commodities is very low and most of the profit traders make is wiped out, as they have to pay these charges.

This fact has not been lost on the regulator as well.

The FMC has asked the North Block that CTT should be either done away with or the amount of levy be reduced.

In fact, the Centre has been taking small steps to do away with this tax. When CTT was introduced, around 23 items, which were pure agricultural commodities, were exempted from the levy.

Recently, 38 items have been added to this list. These include rice or paddy, rice bran, tur, tur dal, urad, urad dal, mung, mung dal, masur, gram dal, gram husk, onion, bajra, jowar, ginger, sesamum, small millets and groundnut.

“There is a strong possibility of CTT being done away with or reduced. It will bring back liquidity to the commodity futures markets. While the idea of the former finance minister was to introduce a tax on the lines of that in the equities markets, figures have shown that the collection of CTT is below that of STT,” a market expert said.

Analysts said they expected Jaitley to announce the merger of the FMC with the Securities and Exchange Board of India.

via NorthEast Calling http://ift.tt/1DpOBN7