Financial Daily from THE HINDU group of publications
Wednesday, Mar 02, 2005
Industry & Economy
Experts seek rollback of cash withdrawal tax
Kolkata , March 1
TAX experts and management professionals, after analysing the hidden details of Finance Bill 2005 at an interactive session on Union Budget 2005-06 organised by the Merchants Chamber of Commerce today, urged the Finance Minister, Mr P. Chidambaram, to take a fresh look at both the Banking Cash Transaction Tax (BCTT) and the Fringe Benefits Tax (FBT).
They said that industry should be prepared for a severe backlash over the two "draconian" measures of the Budget.
Putting trade and industry on notice over the negative implications of the two tax proposals, Mr Amitabh Kothari, Director of Allahabad Bank and practicing chartered accountant, said that the proposed BCTT, ostensibly to check black money transactions, under Chapter 7 of the Bill with as many as 30 sections, was unheard of in any other country. He suggested that it be rolled back without any further adieu.
Stating that through "such a clever move", the Finance Minister may actually be planning to raise a huge amount for the Exchequer, he said that charging genuine cash withdrawals of a small amount of Rs 10,000 - which has already been taxed (the money kept in a bank by common citizens by way of savings) - through a new levy was "totally unjust".
He added that though the rate at 0.1 per cent was very low, given the range of such withdrawals by corporates, especially in sectors like jute or tea where labour are paid on a daily or weekly basis, the Government may actually get to collect a few thousand crores of rupees.
Subjecting even receipt of cash on encashment of term deposit to BCTT may hit every single citizen of the country, and lead to chaos in the banking system, he warned.
Mr R.K. Agarwal, Director of Ernst & Young, said: "Black money holders know where to park their money, and it is certainly not in a bank."
On FBT, Mr Kothari said that such levies would make the I-T officer the super boss, exposing honest assessees to more harassment.
Mr Kothari said that the FBT, if imposed, may force corporates to entirely do away with all fringe benefits, and instead shift it under the salaries head, shifting the tax burden to the employee, which may again cause resentment.
According to Dr Abhijit Sen, former co-Chairman of Nicco Corpn Ltd, whatever benefits that may accrue to the corporates over the cut in corporate tax rates would be nullified by the BCTT and FBT, coupled with the hike in surcharge on dividend tax and steep cut in depreciation rates for plant and machinery from 25 per cent now to 15 per cent.
On the proposed new international concept of EET (exempt+exempt+tax), as opposed to the existing EEE (exempt+exempt+exempt), likely to be pushed in the next fiscal, Dr Sen said that the Government should clarify that this would apply only to future contributions to savings instruments like PPF and not ongoing schemes as it may cause mayhem among citizens.
PPF and life insurance premium are long-term investments and the Government cannot just change the rules of the game midway, he added.
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