Chidambaram gets flak
You don`t say!
Darius Nakhoonwala
Never, said Winston Churchill about the pilots of the Royal Air Force fighting the Germans during the Battle of Britain, have so many owed so much to so few. Reading the editorials last week about Finance Minister P Chidambaram`s two new taxes, one could say "never have so many cursed so much for one act of folly."
That these taxes - the fringe benefit tax (FBT) and the cash withdrawal tax (CWT) - are an act of folly is not in doubt. But as they say in the south, Mr Chidambaram is like that only. From time to time he likes to get things very wrong.
The FBT is a tax on the things you get from your employer - trips, conferences, fees for education paid directly and such like -- but only if you work in the private sector. If you work for the government or one of its agencies like universities, hospitals or public sector firms, you will not be taxed.
No wonder Tavleen Singh, writing in the Indian Express on Sunday, May 8, took off like am outraged peahen. Why not tax yourself, Sir, she asked when she regained her composure towards the end of the column. Because, darling, the government can`t tax itself, didn`t you know?
The leader writers were better informed. They were also unanimous in their condemnation and said much the same thing as Ms Singh and with more decorum. Everyone said that the FBT would increase harassment by tax officials and it would encourage companies to show their expenses in new and innovative ways. The Indian Express said that the revenue it would generate would be small. Since when has around Rs 4,000 crore become small?
As is usual these days The Hindu was very forgiving in tone, though more so about the CWT. "One could discern the hand of the Prime Minister in the actual unfolding of events as rarely could a controversial proposal such as the cash withdrawal tax have been pushed through without the political signal from the very top… it must be said that the administration has demonstrated considerable tactical acumen in outplaying the traditional politician in their opposition to the above tax proposal."
What followed was rubbish of a very high order. I must quote it at length:
"the manner in which the government allowed the traditional political class to milk the `common man` theme for all it was worth in the context of opposing the levy right from the time the proposal was announced in the Budget and leading all the way up to the date of replying to the debate. The stage was, thus, set for turning the tables on them by announcing that the levy would be imposed neither on savings bank account transactions nor on withdrawals from current accounts of small denominations. Having taken the `common man` argument all this while these politicians cannot very well turn to some other principled objection of macroeconomic policy to mount an opposition and must thus be reconciled to this levy becoming a feature of the tax structure."
But when it came to FBT, the paper was understandably indignant. "The term `fringe benefit` is actually a misnomer as it suggests that employees are in some way partaking of the benefit of such payouts listed in the Bill. If they are involved at all it must be at the periphery, as a corporate entity cannot get on with its business except through the medium of its own employees. For instance, it would be a company`s own employee who entertains the purchase officer of a customer firm to dinner, but is there any personal benefit involved in the arrangement?"
Others were more forthright. Everyone said the two taxes should have been scrapped. All gave excellent reasons. Pity the finance minister is not open to good logic. The Business Standard summed it up best: "The finance minister has done enough by way of amending his two controversial tax proposals to blunt criticism, but not enough to end it altogether."
It was also the only one to point that it is unfair to tax retirement benefits for those in the private sector but not government employees. "India lacks a social security system; and the figures show that the provident fund mechanism is not serving the purpose of giving employees a retirement nest egg. Yet PF contributions get favourable tax treatment and more, whereas superannuation benefits are now sought to be fully taxed. The contradiction is too glaring to be ignored, especially when the government does not impute a tax on the pension benefits that get built up during the career span of its own employees."
Feeback: editor@thehoot.org
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