Due to its unique tax haven-like status, Sikkim, a little State with a population of 6.58 lakh, has become a shelter for commodity market speculators. From nil just over two years ago, Sikkim-based traders' Mumbai market share on the Multi Commodity Exchange (MCX) increased to 5.5% in February. According to data, throughout February, MCX's platform saw a total volume churn of over $110 billion, with Sikkim accounting for over $6 billion.
Other States with high population densities, however, are experiencing substantially lower volume despite having more traders. For instance, Bihar, which has 2.88 lakh dealers, only makes up 1.51 percent of the total trading volume. Kerala has 2.04 lakh dealers, yet the state's share in the market is just about 1.45.
Sikkim's renewed interest in commodity speculation may be due to the lack of a PAN, allowing for tax-free filing.
Crude oil, gold, silver, and other base metals account for more than 95% of the trading volume on the MCX, with foreign markets typically being the source of these commodities' price discovery. Traders in Sikkim may be using them as a proxy to execute trades on the MCX, according to analysts.
Tax Haven of India
The former kingdom of Sikkim was integrated with India because its previous legal system and unique status, as outlined in Article 371(f) of the Constitution, remain in place. As a result, the state's own Sikkim Income Tax Manual 1948 served as the basis for its tax regulations. No resident was required to pay taxes to the Center under its terms.
However, after Sikkim's tax rules were overturned in 2008, section 10 (26AAA) of the Union Budget was added to exempt the State's citizens from paying taxes. The Income Tax Act of 1961 of India, which replaced an outdated statute, included a section that preserved Sikkim's special status and added the term "Sikkimese" by Article 371(f). Section 26AAA excludes Sikkim people's income from overseas, making it difficult to evaluate market speculators, with PAN exemptions and lack of tax filings.
SEBI released PAN
After 2008, the market regulator Sikkim residents no longer need a PAN to invest in mutual funds and the Indian securities market, per SEBI. They provided the custodians and exchanges in Mumbai with confirmation of residency.
Following a 2007 ruling by the Sikkim High Court, SEBI issued a circular to exempt Sikkim residents from the PAN requirement.
The flow of money into Sikkim has increased since demonetization in 2016 and the introduction of GST in 2017, effectively reviving speculative trade activity in Sikkim. Tax specialists claim that the Sikkim Income Tax Act has several murky areas, including practical and technical difficulties.
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