New Delhi: Any transaction tax on commodity derivatives will shift the declining business to either illegal 'dabba' trading or overseas commodity exchanges, warned the industry representatives.
"Imposition of Transaction Tax on commodity derivatives transactions will boost the illegal 'dabba trading' markets without any gain to the exchequer," said the commodity exchanges in their representation to the government.
Arguing against imposition of such a tax in the Budget for 2013-14, the industry representatives said that Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan had in 2009 opposed levying transaction tax on commodities trading.
"The government considered the advice of PMEAC, as it concerns lakhs of jobs and livelihood in the entire commodities market ecosystem and took a considered view", they said, adding it would be retrograde to impose it at a time when the commodities market is struggling to arrest decline in trading volume.
Rejecting the contention that securities transcation tax (STT) was shifting trade to commodity exchanges, they said, while equity trade provides for capital appreciation, commodity exchanges help stakeholders to hedge risk against adverse price movements. Both cannot be compared, they added.
Food and Consumer Affairs Minister K V Thomas has already written to Finance Minister P Chidambaram saying that any such move would distort the nascent market.
Thomas said that his ministry would "like (Chidambaram) to defer, if there is an intent to introduce commodity transaction tax (CTT) on the commodity derivatives in the ensuing Finance Bill 2013".
Several apex industry chambers in their representations to Chidambaram have asked the government not to impose transaction tax on commodities derivatives as it would impact lakhs of jobs.
While the daily volumes in commodity derivatives market have gone down in 2012-13, stock exchange volumes have witnessed an increase.
So far in the current fiscal, the volumes in commodity futures market dipped by 3 percent to Rs 56,716 crore, while equity options (where STT is not applicable) went up by 26 percent to over Rs 1.23 lakh crore.
Referring to the ill effects of tax on commodities derivatives, the representatives of commodity exchanges said, "in the absence of an autonomous regulator in the commodities derivatives market, transaction tax on commodities will further provide a boost to illegal platforms (like dabba trading)."
'Dabba' trading is a commonly used term for off-market, informal trade activities, which are illegal in nature and where punters indulge in speculative trading to make quick money without paying any taxes or transaction fee.