By Deepak Rangan
The Indian government is reportedly reconsidering a proposal to implement Commodity Transaction Tax (CTT) and this has irked the commodity trading community who believe that they are already being taxed too high.
Five years ago, the government had decided to impose the tax but then scrapped it away on pressure from various lobbies. With the global uncertainty affecting revenues of the government, taxing derivatives is the most logical choice, considering that volumes being traded promise significant revenue generation. But is the implementation of the CTT fair?
Two sides of the coin
-The trading community does not believe so since they argue that they already pay multiple taxes and the additional tax will be unfair for them. Especially farmers and physical traders.
-The counter argument comes in the fact that the current proposal is focused only on non-farm commodities and most of the trade in metals and energy (gold, silver, copper, crude oil) are purely speculative. So, will it not be fair to charge on commodities that see high speculative activity? Especially since the government has already implemented the Securities Transaction Tax (STT) for equity markets.
Possible solution
-One possible solution is to make a clear distinction between commodity hedgers and speculators. What this means is that when a farmer or a metal trader comes to hedge his commodity, let that account be exempt from taxes. On the other hand, when a trader opens an account for purposes of speculation, let that account be charged.
There can be no fair argument made for the case of exempting commodity speculation when equity market transactions are being taxed.
The decision has not been made yet, so we will have to wait to see what the government decides with regard to the issue- to tax or not to tax?
