Ravi Kumar, MD ofNCDEX believes that CTT would have a major impact. Speaking to CNBC-TV18 he said, “CTT at this stage is something that the market cannot bear. So we are very optimistic that it would be rolled back.”

Excerpts from CNBC-TV18's exclusive interview with Ravi Kumar:

Q: Put it into context commodities transaction tax, how bad is it for you?

A: Pretty bad. The perspective is that when the STT equivalent was issued in stock markets, the stock market had matured; they had a 15-year history behind them. They had the complete market segments, spot, futures, options they had all products, they have single stock options, they have indices directly of products and most important they had all the customers; they have banks, FIIs, mutual funds, NRIs and a host of other corporates who participated in the markets.

In our case we have simply futures, no options, no indices, spot markets are with State Government and most important is the Regulator’s Independence, the bill has introduced in the parliament and ordinance was issued in end of January. It is only after the bill is ratified that new products will come, new customer segments will come, the baby is not born and the baby is being taxed.

Q: Is it correct that the Budget has incidence of 12% and a service charge of Rs 17 for every one lakh of commodities trade that is done or is it one or the other?

A: There are two different impacts, one is of the service tax and second is of the CTT (commodities transaction tax). Currently the exchange is levy between Rs 200 and Rs 300 per lakh as the transaction fee and the tax is Rs 1,700 per lakh. So it is almost 6-7 times what the exchanges charge but this is the same level even in stock exchanges. But the reality is that the stock markets are 5-6 times as big as the commodity markets but the moot point is the purpose of the markets.

Stock markets are to channelize investments and for capital formation; commodity markets are price discovery platform and risk management platforms. Actual user participation on commodity exchange is very high 30%-35% of our open interest is from actual users and commodity before it comes to be traded on our platforms is already taxed to the tune of almost 12%, mandi tax, the CESS, the handling cost, warehousing charges. A stock market has none of these charges; you cannot tax a commodity, which is already taxed earlier.

The service tax impact is minimal because the member brokers were already paying service tax, it is only that it will get corrected centrally in one point and paid and then passed on to the members there will be some impact but the major impact would be the CTT (commodity transaction tax).

Q: How would you expect to offset the hit that you will take on account of this commodity transaction taxes in your business profile as you go ahead in FY09 or is this hit that you will have to take in a way that you cannot counter it or pass it through?

A: At this stage I think we cannot afford to take this hit, the market simply cannot bear this tax. All the exchanges have already represented to the regulators, the Foreign Markets Commission for a rollback of the tax. We are very hopeful that the facts would be seen. Globally no commodity exchange is taxed this way. One cannot compare taxes in the manner in which stock markets are taxed.

STT when it was introduced later the tax rate was scaled back; two benefits were given to the market participants by way of offsetting of business losses and gains against the trading losses and gains. The long-term capital gains tax was abolished. We are not claiming the long-term capital gains tax benefit because it is not of much relevance to us but clearly the business gains and losses being offset against market trading gains and losses is something, which is very relevant to us.

Without these benefits and even with these benefits, CTT at this stage is something that market cannot bear. So we are very optimistic that it would be rolled back.