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Wednesday, January 19, 2022

India-How Natural Rubber came under the purview of CTT: The inside story

“When the CTT proposal was being mooted by the Finance Ministry, it invited representations from commodity futures industry stake holders like NMCE, MCX and NCDEX and numerous others. The representations were primarily critical of the proposal. When the representations piled up in this regard, the Finance Minister himself asked the Joint Secretary of the Finance Ministry to decide on this matter as per his wisdom. The Joint Secretary made a discretion between processed agri-commodities and non-processed agri-commodities and included processed agri-commodities under the purview of CTT.”

By Rakesh Neelakandan
The debate is brewing: is natural rubber an agri-commodity or not? The answer can have wide-ranging implications as far as the implementation of Commodity Transaction Tax is concerned. Natural rubber is one of the agri-commodities that has come under the purview of CTT which is effective starting July 1.

“In India the entire income from natural rubber is treated as agricultural income and is taxed under Agricultural Income Tax Act of the various State Governments. Moreover cultivation of rubber is an eco-friendly and environment-friendly activity qualifying it for subsidies allowed on agriculture,” a note from India’s National Multi Commodity Exchange said.

“Although natural rubber (NR) is an industrial raw material, rubber cultivation is basically an agricultural operation,” it said. “Most of the rubber growers in all major rubber producing countries are tiny landholders and rubber cultivation is their sole livelihood,” the note tried to build up a case.

It should, for the imposition of CTT is expected to impact NMCE the most.

What does India’s Rubber Board say on the status or categorisation of natural rubber. How does the elite Rubber Board consider natural rubber?

“See, there is no official categorization as far natural rubber is concerned. Natural rubber is an agricultural product even as it is an industrial raw material,” said an official with India’s Rubber Board.

The Board Chairman Sheela Thomas was not immediately available for comment for she is travelling overseas.

May be we should be normative in our question: should natural rubber be considered as an agricultural commodity?

The most compelling argument—that natural rubber should be considered as an agricultural commodity– came from Professor Philip Sabu, a Professor with Kerala Agricultural University.

“The commodity was introduced in futures trade so that farmers should be able to hedge. If CTT is imposed on natural rubber, the hedging costs would go up and farmers stand to lose, which is not right”, he argued.

The reaction from a tyre industry representative was peculiar. An official with one of the premier tyre manufacturers in India, he said, “as far as we are concerned, and as far as I am aware, it does not make a difference, whether natural rubber is treated as an agricultural commodity or not.”

Seasoned traders also wanted natural rubber included in the category of agricultural commodity, “isn’t that the right thing to do,”a trader retorted.

So how come natural rubber got included in the CTT list.

The inside story

Highly placed sources said to us:

“When the CTT proposal was being mooted by the Finance Ministry, it invited representations from commodity futures industry stake holders like NMCE, MCX and NCDEX and numerous others. The representations were primarily critical of the proposal. When the representations piled up in this regard, the Finance Minister himself asked the Joint Secretary of the Finance Ministry to decide on this matter as per his wisdom. The Joint Secretary made a discretion between processed agri-commodities and non-processed agri-commodities and included processed agri-commodities under the purview of CTT.”

So how come soymeal and soyoil are exempted from the CTT list?

An expert suggested that it could also be that the secretary made a distinction between human/living being consumable agricultural commodities and processed commodities as well. And alas natural rubber fell into latter section!

Reversal possible?

When contacted CEO of NMCE, Mr. Anil Mishra declined to comment if he has taken up the issue at the governmental levels. “ I cannot say anything…I can’t share it with you,”he noted.

Meanwhile, the Minister for Food and Consumer Affairs, K.V.Thomas said on CTT:

“I do not quite recollect if natural rubber was mentioned in the note which we sent to the Finance Ministry seeking to exempt all agricultural commodities from CTT…since CTT was declared as a part of the Budget Session amendments to CTT may be difficult.”

However, in the brief conversation with minister, it was not clear that if the hopes of natural rubber to be exempted from CTT are at best over.

Commodity Transaction Tax: Natural Rubber conspicuous by absence in CBDT exemption list

Reacting to the absence of natural rubber in the exemption list, NMCE CEO Anil Mishra said, “this is unfortunate as large number of farmers who have been availing of hedging facilities would be affected as hedging costs are going to rise.” He said that it is unfair not to treat natural rubber as an agri-commodity as it runs contrary to the definition of agriculture provided in the Service Tax rules. “We are taking this up at the highest levels,” he said.

By Rakesh Neelakandan
KOCHI (Commodity Online):
 Amongst the list of commodities exempted from India’s Commodity Transaction Tax, a particular commodity is conspicuous by absence: natural rubber! The rationale runs that the commodity is an industrial commodity and not agri commodity and hence subject to CTT.

Reacting to the absence of natural rubber in the exemption list, NMCE CEO Anil Mishra said:

“This is unfortunate as large number of farmers who have been availing of hedging facilities would be affected as hedging costs are going to rise.” He said that it is unfair not to treat natural rubber as an agri-commodity as it runs contrary to the definition of agriculture provided in the Service Tax rules.

“We are taking this up at the highest levels,” he said. He also noted that several reactions that he came across deem the inclusion of natural rubber under the CTT banner to be unfair.

This development would one way or other influence trade volumes in NMCE natural rubber futures, analysts opine.

From almond to wheat, a total number of 23 agri-commodities are exempt from CTT announced back in February’s Union Budget presentation by P. Chidambaram, India’s Finance Minister.

After a lot of uncertainty, anxieties and apprehensions, Commodity Transaction Tax (CTT) is becoming a reality from July 1, 2013.

Finance Minister P Chidambaram had notified CTT in the Union Budget for 2013-14 stating that it will be on par with the amended Securities Transaction Tax (STT) to be levied at the rate of 0.01% even as brokerages and Ministry of Food, Consumer Affairs and Public Distribution had urged the government not to implement it at this stage when market is to attain volumes and maturity.

CTT will apply to metals and energy complex traded in futures exchanges.

SOurce: Commodity Online

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