FM rules out fringe cut, but trim's okay

NEW DELHI: Finance Minister P Chidambaram on Wednesday gave a clear indication of reviewing the Budget proposal to tax cash withdrawals from banks.

The government will also take a relook at various categories of expenses proposed to be covered under fringe benefits offered by employers. However, at the same time he stood by his Budget proposals to bring into the tax net perquisites offered to employees, which are of private nature, as also devise anti-evasion measures.

Addressing captains of Indian industry, in his first post-Budget interface with India Inc, organised by Ficci, Mr Chidambaram reiterated that the government had no intention to tax any “legitimate business expense�.

“All unintended anomalies that may have crept in while drafting the provisions in the Budget will be removed. The final draft will reflect these changes when the rules will be framed,� he re-assured the gathering.

Mr Chidambaram said though he had an open mind on addressing the concerns over the tax on cash withdrawal of Rs 10,000 from banks, he reiterated that the move was proposed as an anti-evasion measure, not a revenue-raising exercise. “If there is a more acceptable way to tackle the problem of huge cash withdrawals, whose purpose is not always clear and apparent, we will go for it,� the finance minister said.

Mr Chidambaram noted that the essence of the Budget proposals were to spur spending and savings, which would in turn fuel growth of the economy. “A healthy capital market will offer opportunities for converting the savings into investment,� he added. On a lighter note, the FM appealed to housewives that 60% of the increment in disposable income on account of change in direct tax slabs should be directed at spending, and the remaining for savings.

“The most important aspect of the budget is the tax reforms. This is the most courageous direct tax reform in the last 7 years to encourage spending and savings, which will fuel growth,� Mr Chidambaram added. The Finance Minister said that corporate tax rates will remain “stable� over the next 4-5 years so as to stimulate growth.

Highlighting the need to implement VAT from April 1, Mr Chidambaram advised industry to forcefully recommend state governments to implement VAT on the stipulated date. He readily agreed to an industry demand for devising a long-term policy for stimulus to R&D.

Earlier, raising broad issues of concern about the Budget, Ficci president Onkar S Kanwar noted that Fringe Benefits Tax will increase Corporate India’s annual tax outgo by 4% to 9%.

While welcoming the reduction in corporate tax rate, the Ficci president also called for restoration of the surcharge to pre-Budget level of 2.5%, against the 10%-rate proposed in the current Budget. The chamber has suggested bringing agricultural income from commercial crops — beyond Rs 5 lakh, at a flat rate of 15% — as a step towards enlarging the tax net.

Parthasarthi Shome, advisor to the Finance Minister, pointed out that the government has for the first time proposed to create a single-window clearance for large corporate tax payers, which will help them to cut down on paperwork.