Abolition of CTT silver lining in lacklustre Budget

CTT, a levy on the lines of Securities Transaction Tax (STT) proposed for taxable commodity transactions on exchanges such as MCX and NCDEX, was proposed by then Finance Minister P. Chidambaram in the 2008-09 Budget. The Government had proposed 0.017 percent as the CTT or Rs.17 on the transaction value of every Rs.1 lakh trade on commodity exchanges but CTT was not notified following stiff opposition from regulators and exchanges.

Hence, scrapping of CTT from the Finance Act of 2009 may not immediately raise trading volumes as the tax was never levied. However, the sentiment will improve among investors and punters who have shifted to commodity derivatives due to lower margin requirement.

"(The abolition is) a very positive sign for Indian commodities market. Being in the nascent stage of development, abolition of CTT will reduce transaction costs in commodities trading, thereby the burden will come down and participation in these markets shall increase. CTT was to be introduced in the last budget and was causing concern in the growth of the Indian commodities market. This news of abolition of CTT has brought in great relief," said Dinesh Thakkar, CMD, Angel Broking.

Agrees R. Ramaseshan, managing director and CEO of agri bourse NCDEX. "The removal of CTT has removed the apprehension that was associated with it when this clause was introduced last year. We are sure that this will improve the level of participation in the market as there are a large number of value chain participants dealing in farm products, who will feel more encouraged to trade in this segment more freely now," he said.

Volumes on three multi-commodity bourses - Mumbai-based MCX and NCDEX and Ahmedabad-based NMCE - increased from Rs.27,787 crore in FY04 to Rs.51.85 lakh crore in FY09. In the current financial year to June-end, volumes were worth Rs.15.42 lakh crore.