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Taxes on commodities criticised

CHENNAI: The budget-induced move to levy service and transaction taxes on commodities has come in for a sharp criticism.

“The commodities’ markets are global asset class and trade flows to most efficient markets, which has least cost of trading,” according to Jignesh Shah, Managing Director and Chief Executive Officer, Multi-Commodity Exchange (MCX). “With the addition of commodities trading tax, Indian market will become unusable for risk management,” he said.

The budget has added an incidence of 12 per cent service charge. It has also imposed a transaction tax of Rs. 17 per lakh for commodities trading. The twin levies would increase the cost by more than 800 per cent, Mr. Shah said. “This taxation was introduced in the securities market with the attendant benefit of long-term capital gains and allowing futures income loss to be treated as normal business income loss. The commodities markets have not received these two incentives and have exclusively been burdened with transaction cost, which will make our market inefficient compared to similar global markets,” he pointed out.

As commodity markets were more comparable to the currency market, being global asset class, users were sensitive to transaction cost up to the fourth decimal place, Mr. Shah said.

“Keeping in mind the cost sensitivity of trade, without the attendant tax advantages given to stock markets along with STT (securities transaction tax), we think Indian commodity market will become inefficient and not serve its economic purpose of enabling risk management at this cost of trading, which is far inefficient compared to global cost of industry and business will migrate from regulated exchanges to international markets or unofficial local market,” he said.

According to R. Pattabiraman, Chief of Commodities, Apollo Sindhoori Commodities Trading Ltd., the twin tax proposals would increase the cost of operations for the users. Since certain commodities were internationally traded, the tax move would distort the price discovery mechanism. “The farm sector itself is not taxed. As such, the levy of taxes on trading of commodities could have been avoided,” he added.

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