In order to boost trading volumes, Commodity Participants Association of India (CPAI) has urged the government to rationalise commodities transaction taxes. CPAI also proposed to treat the Commodity Transaction Tax (CTT) as tax paid under section 88E and not as an expense. CPAI is the apex pan-India association of participants in commodity exchanges and commodity derivative segments. Since the introduction of CTT in 2013, the volume in commodity markets have plunged by 60 per cent, while the government collected only Rs 667 crore as revenues.
The association said that revenue foregone for the government by providing CTT towards tax liability under Section 88E would be minimal because the benefit cannot be taken by entities like mutual funds which are tax-exempt, foreign portfolio investors (FPIs), retail and wholesale investors claiming capital gains and entities with loss or inadequate profit. CTT can be claimed only by entities under business income who even after the set-off will continue to pay effective tax at full slab rates at 34.94 per cent (LLP) and 25.1 per cent for companies.
If the companies incur loss or inadequate profits, their effective tax rates will be higher and unused CTT cannot be refunded or carried forward to next year. Apart from CTT, the association also requested the government to rationalise Securities Transaction Tax (STT) and restore section 88E. By rationalizing STT and restoring section 88E, India can increase STT revenue collection of at least Rs 7,000 crore a year. STT is a tax on share market transactions and gets automatically deducted upfront based on a person's turnover irrespective of profit or loss. CTT is a tax similar to STT, levied on transactions done on the domestic commodity derivatives exchanges.