FMC Writes to Fi­nance Min­istry to Abol­ish CTT

Says the tax has had an ad­verse im­pact on vol­umes, price dis­cov­ery and hedg­ing ef­fi­ciency

The Economic Times - - Economy - RAM SAH­GAL

Com­mod­ity ex­changes reg­u­la­tor For­ward Mar­kets Com­mis­sion (FMC) has writ­ten to the fi­nance min­istry, its ad­min­is­tra­tive min­istry, to re­move the trans­ac­tion tax on com­mod­ity fu­tures trade or CTT in­tro­duced in July last year be­cause of its ad­verse im­pact on vol­umes and in­di­rectly on price dis­cov­ery and hedg­ing ef­fi­ciency, said a per­son aware of the de­vel­op­ment. The think­ing within the mar­ket, this per­son said, was that the new govern­ment, led by NDA, dur­ing whose ear­lier term com­mod­ity fu­tures trad­ing was re-in­tro­duced af­ter an al­most four-decade ban, might halve the levy from .` 10 per lakh on the sell side, along with ra­tio­nal­is­ing the se­cu­ri­ties trans­ac­tion tax (STT) in the stock mar­ket. “Vol­umes tanked by 40% in July last year from a year ago when the tax was in­tro­duced and cu­mu­la­tive value of trade in the fis­cal year through March 2014 de­clined by 40% year-on-year to .` 101 lakh crore. Thus, the ad­verse ef­fect of this tax alone on vol­umes is 40%,” he added. The im­pact of re­duced vol­umes, say com­mod­ity ex­change of­fi­cials such as Satyananda Mishra, chair­man of MCX, has im­pacted price dis­cov­ery and hedg­ing ef­fi­ciency. The­o­ret­i­cally, an ideal mar­ket has an equal num­ber of spec­u­la­tors and hedgers. How­ever, the per­son cited ear­lier said on MCX, the pro­por­tion of day traders — who square off their po­si­tions be­fore the clo­sure of a trad­ing ses­sion — af­ter the levy de­clined from around 60% to 20% and that of spec­u­la­tors in­creased from 20% to 60%. Hedgers ac­count for the re­main­ing por­tion on the metals and en­ergy bourse, which has im­pacted price dis­cov­ery and hedg­ing qual­ity as the num­ber of spec­u­la­tors — who hold po­si­tions for few days based on in­formed de­ci­sions — has risen. Ramesh Ab­hishek, chair­man, FMC, could not be reached for a com­ment. MCX’s Mishra said the logic for im­po­si­tion of CTT — that a sim­i­lar tax ex­isted for stock and in­dex de­riv­a­tives and thus, com­mod­ity fu­tures trans­ac­tions should be taxed too — was un­timely as the mar­ket is just a decade old and has limited par­tic­i­pa­tion as in­sti­tu­tions like mu­tual funds and banks can­not trade and only fu­tures prod­ucts are al­lowed un­like in the stock mar­kets. “There is a strong case for CTT to be abol­ished,” said Mishra, whose ex­change has also been hit by a scam on Na­tional Spot Ex­change (NSEL), a sub­sidiary of its pro­moter Fi­nan­cial Tech­nolo­gies (FT). Apart from MCX, which has a mar­ket share of more than 80%, other com­mexes in­clude farm bourse NCDEX, in which stock bourse NSE holds 10%, CWC-pro­moted NMCE, Ko­takpro­moted Ace, Re­liance Cap­i­tal-an­chored ICEX and the new­est bourse Uni­ver­sal Com­mod­ity Ex­change, pro­moted by Com­mex Tech­nol­ogy.

The think­ing within the mar­ket is that the new govern­ment might halve the levy from 10 per lakh now on the sell side, along with ra­tio­nal­is­ing STT

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