FBT was an unpopular tax and withdrawn before the General Elections in 2009
The Tax Administration and Reform Commission (TARC) has suggested reintroducing the Fringe Benefits Tax (FBT) and Banking Cash Transaction Tax (BCTT) to widen the tax base, minimising various tax exemptions, and staying away from amnesty schemes as these cause inequity among taxpayers.
In its third report given to the finance ministry, the panel headed by Parthasarathi Shome said unlike earlier, even legislators and government officials should be kept under the purview of FBT, which was first introduced in 2005 by then finance minister P Chidambaram. Both FBT and BCTT were unpopular taxes and withdrawn before the general elections in 2009.
“A good tax that had the potential to reduce tax evasion and collected Rs 6,000 crore annually in revenue had to be abolished due to lack of horizontal equity and commensurate pressure from powerful lobbies who paid FBT,” the report said. It added BCTT, introduced in 2005 to track unaccounted money, should also be reinstated, as there is no instrument at present that captures details of cash withdrawals from bank accounts, other than savings accounts.
Shome was stated to be the main brain behind FBT and BCTT even earlier. The report was made public at a time when Budget exercise for 2015-16 in the finance ministry is on.
The report also suggested taxing farmers with large land holdings. It said farmers having high income, such as Rs 50 lakh and above, could be taxed. It recommended wealth tax base be increased by including intangible financial assets in the base while considerably raising the threshold and decreasing the wealth tax rate.
The commission said the finance ministry should look at widening its tax base as more than 50 per cent of registered central excise taxpayers are not filing returns. Only 33 per cent of registered persons under service tax filed returns in 2012-13 and the number fell short of the previous year’s figure by approximately 100,000. It noted unanticipated introduction of the negative list might have led to the drop.
There is a gap in the number of corporate tax payers registered with the I-T department vis-à-vis the number of working companies registered with the Registrar of Companies even though all of them are legally required to file returns mandatorily.
“The tax base is not commensurate with the growth in both corporate and individual incomes in recent years that reflect the growth in the economy… The CBDT should comprehensively identify reasons for the widening gap between PAN card holders and actual number of taxpayers,” it added.
The commission said TDS coverage should be expanded to capture more and more transactions, especially those that involve large amounts of cash but remain outside the tax net. It said exemptions and deductions based on area and industry should be minimised, if not done away with.
The report said the revenue boards should move towards multi-year audits from the current single-year audits and the frequency of audits should be determined by risk assessment and compliance behaviour of the taxpayers and the availability of resources for audit.
On transfer pricing disputes, it said the CBDT should issue standard positions on specific issues as guidance to transfer pricing officers to help ease uncertainty and litigation for taxpayers.
Key recommendations of the tax commission
- Expanding the base
- Reintroduce Fringe Benefits Tax and Banking Cash Transaction Tax
- Identify corporates registered with RoC but not filing tax returns
- Double the number of income taxpayers to 60 million in three years
- Bring large farmers in tax net; get small retailers to enter banking network
- Review and enlarge scope of presumptive profit estimation scheme
- Bridge gap between circle rate and market value of property
- Increase wealth tax base by raising threshold and decreasing rate
- Focus exclusively on high net worth individuals by making a separate cell
- Phase out unwarranted tax exemptions continuing in form of tax preferences
- Use database of Medical Council of India, Aadhaar to locate non-filers
- Issue timely clarificatory circulars to reduce disputes and litigation
- Desist from filing appeal against well-reasoned and sound orders
- Make customer convenience, compliance cost central aspect of any planning
- Integrate central excise, service tax and customs audits
- Create a separate functional vertical for prosecution
- Consider stakeholder consultation as an independent tool for decision-making
- Use impact assessment as a tool to review existing regulations
Illustration: Uttam Ghosh/Rediff.com