Budget 2022 Expectations: Industry body CPAI urges Government to abolish CTT; tax has led to significant commodity volume erosion, it says

by Mrityunjay Kumar Jha

Countdown for the Union Budget 2022 has begun and a wish list for Union Finance Minister Nirmala Sitharaman from various sectors is ready. The commodities market is no different. It is urging the government to remove the Commodities Transaction Tax (CTT).

One of the longstanding demands of the sector from the government is to abolish the CTT. The levy was first introduced in 2013 in commodity futures trading. The demand has been to remove it since then. However, the governments have not budged.     

See Zee Business Live TV Streaming Below:

The industry is of the view that the trading volumes have also declined significantly. It has also resulted in many corporate houses moving to offshore markets.

It has been voicing it concerns and has even gone to say that if the government wants to save the commodities market, it must do away with the CTT in the Budget 2022.

What is CTT?

The then Finance Minister introduced CTT in the Futures and Options market of non-agri commodities including bullion, energy and metals. The levy was at 0.01 per cent.

Which means that a Rs 1000 will be charged on every transaction worth Rs 1 cr. The governments intention was to raise at least Rs 2000 cr through CTT. However, the industry is of the view that that gains to the exchequer are not more than Rs 600 cr. If the loss through GST is adjusted then the gains are around Rs 450 cr.

Significant fall in trading volumes

Industry body Commodity Participants Association of India (CPAI) is of the view that trading has taken a significant hit since the imposition of CTT.  The volumes have come down to around 60 per cent over the last 9-10 years.

While the volume was worth Rs 70,000 cr in 2012-13, it has reduced to Rs 31,500 cr in 2020-21.

Despite India being a top player in the industrial copper segment, the country is behind China by 32 times in terms of trade on MCX. Meanwhile, it is 63 times lower than the London Metal Exchange (LME).

While the demand is to do away with the CTT, the FM must consider a tax reduction to Rs 500 per 1 cr of transaction if the government cannot completely abolish it.

And if even if this is not possible, then at least it should be considered this as tax paid and not as an expense.

This will allow an income tax rebate for the sector.

This could lead to a growth in trading volumes and increase the business, CPAI believes.

The benefits could be manifold as it will also increase employment and lead to launch of new products.