COMMODITIES TRANSACTION TAX

The Union Budget 2013–14 has introduced (basically, reintroduced) the Commodities Transaction Tax (CTT), however, only for non-agricultural commodity futures at the rate of 0.01 per cent (which is equivalent to the rate of equity futures on which a Securities Transaction Tax is imposed in India). Alongwith this, transactions in commodity derivatives have been declared to be made non-speculative; and hence for traders in the commodity derivative segment, any losses arising from such transactions can be set off against income from any other source (similar provisions are also applicable for the securities market transactions).

Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market and to bring parity between securities market and commodities market such that there is no tax/regulatory arbitrage. Futures contracts are financial instruments and provide for price risk management and price discovery of the underlying asset commodity / currency / stocks / interest. It is, therefore, essential that the policy framework governing them is uniform across all the contracts irrespective of the underlying assets to minimise the chances of regulatory arbitrage. The proposal of CTT also appears to have stemmed from the general policy of the government to widen the tax base.

Commodities Transaction Tax (CTT) is a tax similar to Securities Transaction Tax (STT), proposed to be levied in India, on transactions done on the domestic commodity derivatives exchanges. Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of ‘financial transaction tax’.

The concept of CTT was first introduced in the Union Budget 2008–09. The government had then proposed to impose a commodities transaction tax (CTT) of 0.017 per cent (equivalent to the rate of equity futures at that point

of time). However, it was withdrawn subsequently as the market was nascent then and any imposition of transaction tax might have adversely affected the growth of organised commodities derivatives markets in India. This has helped Indian commodity exchanges to grow to global standards [MCX is the world’s No. 3 commodity exchange; globally, MCX is No. 1 in gold and silver, No. 2 in natural gas and No. 3 in crude oil].