Why FM should not impose CTT in Budget 2013

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Paying taxes is good because it shows that we're employed and civilized. We must pay taxes. But asking for more than what is necessary is just a legalized robbery. Now that the Budget is approaching, talks have resurfaced around Commodities Transaction Tax (CTT). The proposed tax is a retrograde one as it would distort the market which is still at a nascent stage.

Does levying a charge which has the potential of adding Rs 3,000 crore a year (maximum) to government's kitty worth sacrificing billions of dollars of trading volumes which will shift to illegal "dabba" market?

Rise in the cost of trading will shift hedgers from the exchange to illegal (dabba) trading system where there are no taxes and no regulations, leaving the domestic exchanges to struggle with falling volumes. By the way, commodity futures is a volume-driven and an extremely low-margin business.

Lower transactions on exchanges will then mean futures market will become inefficient in performing its principle function of price discovery for farmers, and ultimately there will be a spanner in the management of price risks. If CTT is implemented now, it would lead to hoarding in the short-term, throwing a major obstacle in the RBI's efforts to reduce inflation.

Moreover, poor price discovery in the system itself contradicts the plans of UPA which is dying to bring in retail FDI to help farmers realize better price for their produce. So, what's needed is that government needs to boost futures market for creating the conditions conducive for such investments. We must care for each other more, and tax each other less.

Story first published: Monday, February 11, 2013, 17:30 [IST]
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