FIA Cautions Indian Government On Planned Tax on Commodity Futures Transactions

by Lorys Charalambous, Tax-News.com, Cyprus

28 April 2008

The US-based Futures Industry Association on Wednesday released the text of a letter sent to the Indian government that expressed strong opposition to the recently proposed transaction tax on commodity futures.

The letter was sent to Prime Minister Manmohan Singh, Minister of Finance P. Chidambaram, Minister of Agriculture Sharad Pawar and other senior government officials, as well as to key members of Parliament.

In the letter, FIA President John Damgard described the "negative consequences" that typically flow from such taxes, and warned that the proposed tax could result in driving trading volume to foreign exchanges and hampering the future growth of India's commodity futures exchanges.

"India's young but vibrant commodity futures exchanges have earned the respect of the futures industry worldwide," Damgard explained, continuing: "I encourage the Indian government to avoid an unnecessary tax burden and permit these markets to continue to flourish."

"In recent years, India's commodity futures markets have grown spectacularly, but they are still far too nascent to be burdened by a tax that would increase transaction costs by 800%," Damgard added.

"We have seen from past experience in Japan, Taiwan and the US that such proposals drive business offshore and ultimately result in lower tax revenues and a loss of international competitiveness."

The FIA is a Washington-based trade organization for the international futures industry, with a membership that includes the world's largest futures brokers, as well as leading derivatives exchanges from more than 20 countries.

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