Govt may revisit CTT to tame prices
New Delhi
April 6, 2008
The inflation scare has made the government reconsider levying the commodities transaction tax (CTT) announced in Budget 2008-09.
Concerned that the tax could push up prices on commodity exchanges, the Prime Minister's Office has asked its Economic Advisory Council, chaired by C Rangarajan, to review the proposal, official sources told FE.
Finance minister P Chidambaram in the Budget had announced the CTT on the lines of the securities transaction tax (STT). Taxable commodities transactions would include sale and purchase of options in goods, options in commodity derivatives and any other commodity derivative in recognised exchanges. The tax rate would be between 0.017% and 0.125% of the value of every transaction.
Commodity exchanges are already up in arms against the tax and have been asking for its withdrawal. They had pointed out that the tax would increase the transaction cost of exchanges. By levying Rs 17 as CTT for every trading of Rs 1 lakh on commodity exchanges, the transaction cost would go up to Rs 21, including service tax, from the current level of Rs 3, they had pointed out. Any increase in the transaction cost would therefore translate into higher prices of commodities, analysts point out.
Commodity exchanges trade in edible oils, oilseeds, spices, pulses, rubber and the like.
The regulator for the commodities market, Forwards Market Commission too had resented the tax. Based on these feedbacks, the Prime Minister's Office had asked the advisory council to review the proposal. But the latest spate of price rise has added a new dimension to the debate, sources said.
Inflation measured by the wholesale price index has touched a 39-week high of 7% fuelled mainly by spiralling prices of commodities. The rise is proving to big a headache for the government, as it is supply-side driven, which means any change in commodity prices could create a further price spiral. The Cabinet committee on prices recently slashed the import duty on many commodities, like edible oil, and banned exports of non-basmati rice and pulses. More measures such as a price control of commodities and some monetary checks by the Reserve Bank of India are also on the cards.
[Source: The Financial Express]
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