Sebi Urges GST Council to Resolve Tax Discrepancies in Commodity Derivatives

Sebi Seeks GST Resolution for Commodity Derivatives

Mumbai: The Securities and Exchange Board of India (Sebi) has made a representation to the secretariat of the Goods and Services Tax (GST) Council to resolve long-standing tax issues faced by investors trading in physically settled commodity derivatives.

Sebi chief Tuhin Kanta Pandey has proposed an integrated GST mechanism for physically delivered commodity derivatives, replacing the current state-level GST framework. According to Pandey, this proposal aims to simplify the process of GST registration for warehouses located in various places across the country. Currently, warehouses are required to take registration from all the states involved in the delivery process, making it cumbersome.

The proposed integrated GST mechanism would ensure that physical delivery is only facilitated when necessary, thereby reducing risks associated with commodity trading. If approved, this proposal could deepen participation in commodity derivatives, particularly in agricultural commodities. Sebi is also seeking to broaden participation by banks and insurers, although progress has been limited.

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Regarding the participation of banks and insurers, Pandey mentioned that Sebi is awaiting a change in stance from the Reserve Bank of India and the Insurance Regulatory and Development Authority of India. Progress on this front has been slow, with Pandey stating that the regulators currently have valid reasons for not permitting banks and insurance companies to participate in commodity derivatives.

Key Comparison of Sebi's Proposals

In a separate development, Sebi is pushing to implement a revamped central Know-Your-Customer (KYC) system, known as CKYC 2.0. According to Pandey, the new system is currently under preparation and may be ready by July. This development follows a directive from finance minister Nirmala Sitharaman on 25 April, urging Sebi to accelerate efforts to implement CKYC in coordination with other regulators.

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Timeline

• 25 April: Finance Minister Nirmala Sitharaman issues a directive to Sebi to accelerate efforts to implement CKYC.
• June: Sebi completes the preparation of CKYC 2.0.
• July: CKYC 2.0 expected to be ready for implementation.