FM may water down cash withdrawal tax

NEW DELHI: Finance Minister P Chidambaram on Thursday hinted at a partial rollback of the proposal to tax cash withdrawals from banks.

Savings bank account holders could be exempt from the new levy proposed in the Budget to provide relief to the middle class and the salaried. More income tax relief could also be in the offing for women and senior citizens.

Replying to the debate on the general discussion on the Budget Mr Chidambaram said that he was sensitive to the concerns expressed by MPs on the proposed banking transaction tax. “No tax has been imposed. It has only been proposed. You will get some good news — a member mentioned savings account — when the Finance Bill is passed,� he said.

Changes are likely to be made when the government moves official amendments to the Finance Bill later in the Budget session.

The Budget has proposed a 0.1% transaction tax on cash withdrawals from banks — from all accounts including savings account and current account — exceeding Rs 10,000 on a single day. The government is also considering enhancing the threshold limit for exemption.

“I told the prime minister that I was applying his and my austere standards when I had made the proposal. But I understand that times have changed,� he said. He hinted at providing more income tax relief for senior citizens and women if need be: “If there are wrinkles, we will iron them out�.

The FM maintained that the UPA had kept its promise to bring moderation and stability in the tax rates to promote savings. The Budget has proposed restructuring of the income tax slabs to provide relief to the salaried class, besides a cut in the corporate tax rate from 35% to 30%.

He brushed aside criticism in some quarters of a “please all� Budget, saying that the proposals will leave money in everyone’s pockets. “Those who have money should spend 60% and save 40%. Aspiration drives consumption, which in turn drives production,� he said.

The minister also asked the MPs to ensure the implementation of the state-level VAT, due to be launched by April 1. “The promises made by the chief ministers must be honoured.
This will give the states a world class tax system,� he said.

In an apparent reference to the Fringe Benefit Tax, the finance minister said there have been some criticism on some of the other tax proposals, “We will deal with those later�. He said the tax proposals of the Budget have been dictated by the NCMP objective, of keeping the rates moderate and stable.

According to him, the philosophy of the Budget was investment, growth, stability and equity. A 7% plus GDP growth would enable more spending for various programmes. “Our primary emphasis is growth, but it must be stable and sustainable. We need to strike a right balance between taxes and borrowings, taxes and savings, lending and borrowing rates, plan and non-plan expenditure and capital and revenue expenditure,� he said.

The FM painted a rosy picture of the economy, saying that there was a sharp pick-up in investments. This was reflected in the massive pick-up in non-food credit and bank credit over the past one year. Figures for trend in total investment stood at nearly Rs 18,00,000 crore in October ’04, compared with about Rs 14,00,000 crore recorded in October ’03.

“Let us not do anything to spoil the atmosphere of higher investment,� he said.

The minister also said the government has been able to collect more tax arrears in ’04-05 than ever before and said he will share the details during the debate on the Finance Bill.
The finance minister dismissed the Opposition’s charges of soaring prices, saying the present inflation rate, based on the wholesale price index, was a full 1% lower than in the corresponding period last year.

He, however, steered clear of any references to topics like FDI and instead asked the states to drop the Agricultural Produce Marketing Committee Act, which will benefit farmers immensely. The Lok Sabha later passed the vote on account for Rs 1,69,269 crore for meeting government expenditure for the first two months of ’05-06, along with the relevant appropriation bills, by a voice vote, amidst walkout by BSP and SP members.