Fact Box: CTT (Commodity Transaction Tax)

March 14, 2013

In Budget 2013-14, Finance Minister P Chidambaram proposed 0.01% tax on the trade of non-agricultural commodities futures, the new tax is called Commodity Transaction Tax (CTT). As per Budget speech, there is no distinction b/w derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different.

What is CTT?
Commodities Transaction Tax (CTT)

Proposed in Finance Bill, 2013 for enhancing financial resources.
A tax which shall be levied on non-agricultural commodities futures contracts at the same rate as on equity futures that is at 0.01% of the price of the trade.
CTT would tax trading of non-farm commodities like gold, silver and non-ferrous metals such as copper and energy products like crude oil and natural gas in India.
Here both parties—buyer & seller of contract—will be taxed depending on the amount of contract size.
Similar to the Securities Transaction Tax (STT) levied on the purchase and sale of equities in the stock market.
So far, commodity transactions have been exempted from any levy.
Agricultural commodities have been left out of CTT.

What are the Advantages of levying CTT?

It will open up new resources for the augmentation of government finances.
CTT would generate revenues of around Rs.45 billion to government.
It is also aimed at bringing transparency in the commodity exchange market.

What could be the disadvantages of CTT?

CTT has been opposed by the experts and the PMEAC had also suggested against levying such a tax.
CTT will increase the transaction cost because traders already pay brokerage, deposit margin, brokerage, stamp duty and transaction charges.

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