Mr . Chidambaram and CTT

Another invention from Finance Minister Mr. Chidambaram to collect more taxes from Indian Market participants. The invention is named as CTT.

CTT is Commodity Transaction Tax. This is the tax levied on Commodities Derivatives Market(CDM). This is supposed to be active from 1st April, but is deferred for the moment as exchanges and participants opposed CTT citing higher transaction costs.

source : rediff.com

Commodities bourses sent a memorandum to Finance minister stating the below to support their argument.

1.Commodity Transaction Tax (CTT) should not be levied on Commodities Derivatives Market (CDM) just because there is Securities Transaction Tax (STT) on Securities Derivatives Market (SDM)
2.800% increase in the cost of transaction will kill the Indian CDM
3.Cost of transaction has to be in line with global peers as Commodity is Global Asset Class unlike equity which mainly is a Local Asset Class
4.CDM is at a nascent stage. It is only 4 years old
5.Participation of banks, mutual funds, FIs, FIIs is still not allowed. Options contracts, index futures and futures based on intangibles are still to come
6.The correct approach would be to let the market grow properly after enabling all types of instruments and participants, let the market attain its full potential and then tax it, rather than taxing the market before it properly takes off.
7.Stock derivative is on local underlying assets, while commodity derivatives is based on global underlying asset, e.g. gold, soya, cotton, etc. and hence commodity derivatives market cost of transaction should have to be in full convergence with its international peers, otherwise it becomes inefficient and will self-kill
8.Cost of transaction will increase almost by 800 %. Out of the total transaction cost, 85 % will be towards CTT and balance will be towards Exchange fee, service tax, stamp duty, etc. Indian exchanges will become costliest exchange in the world losing their global competitiveness
9.CTT is nowhere in the world & STT is only applicable for the cash segment of equity in the global market. It is not there in the derivatives segment of equity in USA

These arguments make sense to me , as CDM is developing just now and imposing tax on these transactions will hinder the growth of Indian economy.

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