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Commodities Transaction Tax (CTT)

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Commodities transaction tax (CTT) is a tax similar to Securities Transaction Tax (STT) ,proposed to be levied in India,on transactions done on the domestic commodity derivatives exchanges.

Globally, commodity derivatives are also considered as financial contracts. Hence CTT can also be considered as a type of financial transaction tax.

The concept of CTT was first introduced in the Union Budget 2008-09 (para 179 of the Budget Speech).The Government had then proposed to impose a commodities transaction tax (CTT) of 0.017% (equivalent to the rate of equity futures at that point of time). However, it was withdrawn subsequently as the market was nascent then and any imposition of transaction tax might have adversely affected the growth of organised commodities derivatives markets in India. This has helped Indian commodity exchanges to grow to global standards(MCX is the world’s number 3 commodity exchange; Globally, MCX is No. 1 in Gold and Silver, No. 2 in Natural gas and No. 3 in Crude Oil)

In the Union Budget 2013-14(para 149 of the Budget Speech) CTT has been re-introduced, however, only for non-agricultural commodity futures at the rate of 0.01% (which is equivalent to the rate of equity futures). Alongwith this, transactions in commodity derivatives have been declared to be made non-speculative;and hence for traders in the commodity derivative segment, any losses arising from such transactions can be set off against income from any other source (similar provisions are applicable for the securities market transactions).

A separate provision for CTT has been made in the Finance Bill, 2013 (Chapter VII). Once the Bill is passed and the Rules in this regard are notified by the Ministry of Finance, it shall come into force. Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market andto bring parity between securities market and commodities market such that there is no tax / regulatory arbitrage. (Futures contracts are financial instruments and provide for price risk management and price discovery of the underlying asset (commodity / currency/ stocks / interest). It is therefore essential that the policy framework governing is uniform across all the contracts irrespective of the underlying to minimize the chances of regulatory arbitrage.) The proposal of CTT also appears to have stemmed from the general policy of the Government to widen the tax base.

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