FMC WARNS TAX EVADERS IN COMMODITY FUTURES

The Forward Markets Commission (FMC) has warned traders against wash trading, an illegal practice where an investor simultaneously buys and sells shares in a company through different brokers, artificially swelling the trading volume. In these two months (February-March) at the end of a financial year, many traders book huge quantities of stocks, especially in illiquid contracts, to show losses and compensate the profits generated from other frequently traded commodities during the earlier months. Take barley for instance. Sometimes it generates business worth Rs.1-2 crore and then falls to Rs.25-30 lakh on another day. Maize remained largely untraded through the year but has suddenly started getting business worth Rs.9-10 crore. Jaggery (gur) now tops the list attracting business worth Rs.25-35 crore, said trade sources. The FMC has allowed listing of nearly 100 commodities for futures trading on five national and 16 regional exchanges, of which around 15 commodities are highly liquid and a dozen are partly liquid. The remaining two-thirds are illiquid, with a majority having not seen even a single click since listing. Wash trading is easily identifiable through regular monitoring of trades, an analyst said. In a note to commodity exchanges, the FMC said, "The incidence of wash trades, circular trades and trades of a non-genuine nature rise steeply during February-March, presumably for the purpose of evasion of taxes, particularly in illiquid contracts." It has directed the exchanges to monitor such occurrence and take necessary action promptly. Exchanges have also been asked to give amonthly report, including the volume and turnover in such contracts, with details of action taken. "The FMC's move is a step in a positive direction. Overall, the action would prove beneficial for commodity futures trade," said Naveen Mathur, associate director, Angel Broking. The FMC has been encouraged by the success it achieved in controlling tax evasion through frequent Client Code Modification (CCM). FMC Chairman Ramesh Abhishek had recently said, "The occurrence of CCM was very high in trades worth Rs.14,570 crore in March this year. With athree per cent volatility in prices, an additional sum of Rs.450 crore was generated by just changing the client code. This helped evade around Rs.150 crore of various taxes, at the applicable rate of 30 per cent." According to FMC sources, clients' codes were changed for trades worth Rs.1,307 crore in September. This dropped by 97 per cent to less than Rs.20 crore in November, thanks to the strict measures. - www.business-standard.com