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Impact of Commodities Transaction Tax on Indian Commodity Futures

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  • Sinha, Pankaj
  • Mathur, Kritika

Abstract

The Commodity Futures Market is an instrument to achieve price discovery of commodities. The Government of India introduced the Commodities Transaction Tax of 0.01 per cent payable on seller for derivative transactions on 1 July 2013. This tax in line with the earlier tax imposed on transactions in the Securities Market, the Securities Transaction Tax. The difference between the two taxes (STT and CTT) in India is that STT is imposed on both buyers and sellers whereas CTT is levied on non-farm commodity derivatives and the tax is payable by the seller. The aim of imposition of these taxes is to reduce the price volatility and increase tax revenue, whether it will actually be able to achieve the objectives is debatable. It is debatable since the levy of the tax adversely affects the traded volume of the contracts. Currently, the CTT is applicable to non-farm commodity derivatives traded in commodity exchanges of India. The current study uses bootstrap methodology to assess the impact of commodities transaction tax on the trading volume on commodity exchange (overall) and trading volume of chosen commodities. A first order autocorrelation model is also utilised to study the impact of the imposition of CTT on returns and volatility of commodity portfolios.

Suggested Citation

  • Sinha, Pankaj & Mathur, Kritika, 2015. "Impact of Commodities Transaction Tax on Indian Commodity Futures," MPRA Paper 63677, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:63677
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    References listed on IDEAS

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    Cited by:

    1. Priti Dubey & Rishika Shankar, 2020. "Determinants of the Commodity Futures Market Performance: An Indian Perspective," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 21(2), pages 239-257, September.
    2. Sanjay Sehgal & Tarunika Jain Agrawal, 2019. "Impact of Commodity Transaction Tax on Market Liquidity, Volatility, and Government Revenues: An Empirical Study for India," Vikalpa: The Journal for Decision Makers, , vol. 44(1), pages 12-29, March.
    3. Swamy Perumandla & Padma Kurisetti, 2021. "Commodity Transaction Tax (CTT): Nature of Correlation Dynamics and Volatility Linkages Between Indian Commodity and Equity Markets," International Journal of Asian Business and Information Management (IJABIM), IGI Global, vol. 12(2), pages 16-36, April.
    4. Muneesh Kumar & Tarunika Jain Agrawal & Srishti Sehgal, 2017. "Domestic and International Information Linkages for Indian Commodities Market in the Pre- and Post-CTT Periods," Metamorphosis: A Journal of Management Research, , vol. 16(2), pages 75-91, December.

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    More about this item

    Keywords

    Commodity Futures; tax; trading volume; portfolios;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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