The Hindu Business Line : `BCTT, FBT ugly scars on a beautiful Budget'

DESCRIBING the proposed Banking Cash Transaction Tax (BCTT) and the Fringe Benefits Tax (FBT) as two of the most disturbing aspects of a well balanced Budget, top tax practitioners today urged all the apex chambers and industry organisations to jointly appeal to the Finance Minister to scrap the two items.

Speaking at a symposium on the Union Budget 2005-06, organised by the Bharat Chamber of Commerce here today, Mr N.K. Poddar, senior tax lawyer, said if these two go through and get enacted, the effective rate of tax payout for corporates in the country may go up to around 55 per cent, and not 33 per cent as envisaged by the Finance Minister.

It is feared that there may be litigations galore, totally queering the pitch for a good budget which was growth and investment-oriented.

Mr Pesi M. Narielwala, eminent tax expert and chairman of Indo-German Chamber of Commerce, eastern region, while moderating the discussion, compared Mr Chidambaram's Budget to the beautiful face of a woman scarred by the two controversial provisions of BCTT and FBT.

According to Mr D.B. Desai, specialist in indirect taxes, if cost of litigation is added, the effective tax rate for a small company with a turnover of say Rs 20 crore may be even higher, wiping out all profits. Both BCTT and FBT should be opposed in totality, he pointed out. He felt corporates may be better off paying income-tax at the existing 35 per cent plus surcharge. He said the FBT provisions were full of contradictions (Para 159 and Para 160).

Severely criticising the `deeming' provision in the clause pertaining to FBT (benefits provided or deemed to have been provided by an employer), he said even essential medical expenses can be considered as a fringe benefit provided to an employee and taxed at the rate of 30 per cent in the hands of the employer.

Incidentally, FBT is payable by even loss-making companies.

Mr Poddar, questioning the constitutional validity of BCTT, which is going to be administered through the Finance Act (just as the Service Tax) and not through separate Rules, said it was neither a tax on income nor property, and cannot be justified on any count.

Suggesting that implementation of such a tax may not be so easy, he said cash payment was still a recognised mode of payment in this country, and for many governmental payments through challans, only cash form is accepted.

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