By Arun Kumar
Does the government of India think that the booming commodity futures trading market is a rich cash cow when equity volumes are falling?
It looks just days before the annual Indian budget, India’s Finance Minister Pranab Mukherjee wants to cash in on the commodity futures market by levying a transaction charge on every trade done on the commodity exchanges in the country.
The five national commodity bourses in India—MCX, NCDEX, NMCE, ACE and ICEX—have angrily reacted to the development. Supporting the exchanges for the cause is the Consumer Affairs Minister Prof K V Thomas, under whose jurisdiction is the commodity exchanges in the country.
The argument from Finance Minister Mukherjee is that since transaction charge is a well-established levy system in the equity market, the same should be replicated in commodity futures trading too. The Finance Ministry further points out that imposing the transaction tax on commodity derivatives will give a level-playing field between equity and commodity trading market.
Officials in the Consumer Affairs Ministry say that the boom in commodity futures trading volumes over the years has prompted the government to plan the transaction tax on commodity derivatives. “Levying transaction charge on commodity futures trading will bring big revenue to the Finance Ministry’s kitty every year. Since the daily commodity trading volumes are around 1 lakh crore, it is going to be a solid revenue earner,” a senior official pointed out.
Officials also said that falling equity volumes has been one main concern that is compelling the Finance Minister to think of imposing transaction charges on commodity derivates. In the last three years, stock market trading volumes have drastically fallen, considerably reducing the government revenue on the transaction charges on equity derivatives.
Commodity exchange officials in India on Monday submitted a memorandum to the Finance Ministry saying that imposing transaction tax on commodity volumes will be disastrous for the industry. Commodity trading is new to Indian investors and volumes have been going up mainly thanks to the boom in the prices of bullion metals like gold and silver. In fact, several brokerages in India have survived out of commodity futures trading when the stock market plunged in the last two years. Now, if you are going to tax the commodity traders, it will considerably impact on the daily volumes of Indian commodity exchanges.
As of now commodity trading is in a nascent stage in India, compared to the US and European commodity futures market. The commodity turnover tax will deter many investors and traders who are keen to trade in India commodity futures.
In their letter to the Finance Minister, the commodity exchanges on Monday said that the thinking that trading volumes are shifting from equity market to the commodity market is simply fallacious.
“Trading volumes are not shifting from equity markets to commodities, as maintained by these constituencies, but from the cash and futures segments of the equity market to the options segment due to the negligible tax on this segment, as against the equity futures or cash segment," it said.
