In Union finance minister P Chidambaram's Budget 2008 the commodity sector found fault in the commodity turnover tax, which invited flak from almost all brokers and those involved in the trade.

In fact, the Budget offered sops to the farming sector while tightening the screws on the Futures trade.

The budget said henceforth all commodity trade transactions on Futures exchanges will attract a commodity turnover tax on the lines of Securities Transaction Tax.

The tax rate would be 0.0025 per cent. CTT would be Rs 25 for every Rs 100,000 worth transaction. On a conservative estimate, CTT would fetch the government between Rs 900 crore (Rs 9 billion) and Rs 1,000 crore (Rs 10 billion) if trade volumes in last two years were taken as guide.

Given the huge volumes in the Futures section, it is clearly a revenue generating measure for the government.

According to market experts, enhancement of short-term capital gains tax to 15 per cent (from 10 per cent) is another blow to the sector.

Unlike securities brokers/traders, commodity market brokers/traders are unlikely to go beyond launching verbal protest, but meekly accept the tax burden.

In a further expansion of the list of services for purpose of tax, commodity exchanges and clearing houses have been brought under the service tax net.

The current rate of service tax is 12 per cent plus 2 per cent education cess, taking the total to 12.24 per cent.

Commodity exchanges will have to shell out this tax.

P H Ravikumar, MD & CEO of NCDEX said the budget is a mixed one for the commodities sector.

It is a populist and pragmatic one, conducive to growth. The finance minister is clearly focusing on balanced growth while addressing primary concerns of the slowdown in GDP and inflation, keeping in mind the impending elections.

However, expected changes in the sphere of commodity markets were left unattended.

The commodity markets were looking forward to essential changes/ facilities akin to those extended to stock markets such as making income and expenditure on hedging activities in commodity exchanges a permissible business activity under the Income-Tax Act and allowing set-off of losses from trading in commodity futures against profits from the business as a trader, manufacturer or processor, consumer (as raw material) of the same or similar commodity.

The definitions of long term/ short term capital gains was also expected to be extended to the commodity markets.

While these have not happened, it is disappointing to note that the FM has introduced commodity transaction tax along the lines of STT as in stock markets, he said.