The Hindu Business Line : Lahiri defends tax on cash withdrawal, fringe benefit

DR Ashok Lahiri, Chief Economic Advisor, Union Finance Ministry, and one of the architects of the Budget proposals, has defended the proposed Banking Cash Transactions Tax (BCTT) and Fringe Benefits Tax (FBT) measures proposed in the Union Budget.

Addressing an interactive session on `Union Budget 2005-06' here on Friday, organised by FICCI, Eastern Regional Council, Dr Lahiri, commenting on FBT, said the concept of income has to be an inclusive one. The question to be asked, he felt, was whether "it is a legitimate business income clearly attributed to the employee, as such or not."

On the BCTT, he said a large number of suspect cash transactions do take place in the country. The main fears of industry were over the resultant harassment at the hands of the ITO, which may exercise unfettered powers on any and every cash transaction. It is agreed by all that this would certainly breed corruption at various levels.

Not willing to spell out clearly what was Government's thinking now, after the hue and cry in Indian industry over both the cash withdrawal tax and the FBT, Dr Lahiri said, "Legitimate business income has to be defined by law".

Admitting that he was somewhat out of depth as far as the legal aspect of the whole thing, he said the best of legal brains were now at it, examining the cause for concern in industry with regard to the new proposals. Human judgement, though unavoidable at times, should be as minimal as possible, he admitted.

On the cash withdrawal tax, he said a large number of suspect cash transactions do take place in the country, and the Government is determined to track these down. Industry circles expect that the BCTT proposal may either be scrapped altogether or the cash withdrawal threshold level may be substantially raised.

Explaining the Budget philosophy of `growth, stability and equity', mutually reinforcing concepts, Dr Lahiri said a strong beginning was being made from this Budget to track the outcomes of the outlays being made on various important heads such as infrastructure development, education and health. We need to know what the monies will deliver, and these have to be verified against the specified physical targets, he pointed out.

Asked why only the salaried class was being flogged for increasing tax collections and not the rich sections of the farming community, Dr Lahiri said, "In principle, I agree that agricultural income should be brought under the income-tax net, but one has to look at the practicality of the issue too."

He said with agriculture's declining share in GDP, now at around 21 per cent, and with the huge workforce engaged in it (some 57-58 per cent) the income threshold and the resultant per capita income were quite low.

In order to get a rupee of agricultural income taxed, we would end up spending much more than a rupee, he pointed out.

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