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Budget: Chidambaram hints at rural bias

Special Correspondent

Unanimous call by corporates for removal or simplification of Fringe Benefits Tax

CONSULTING EXERCISE: Finance Minister P. Chidambaram at a pre-budget meeting with industrialists in New Delhi on Monday. — Photo: PTI

NEW DELHI: Even as the Finance Minister, P. Chidambaram, on Monday indicated the broad contours of the Budget for 2006-07 — in particular, the much needed rural bias to pep up the agriculture sector along with measures to boost irrigation schemes, rural infrastructure, food processing and the social sectors — the unanimous demand of India Inc. was simplification, if not removal of the "traumatic" Fringe Benefits Tax (FBT) coupled with rationalisation of corporate taxes.

At the first pre-budget consultations with representatives of apex chambers and captains of industry here, Mr Chidambaram sought to argue the UPA Government's economic growth programme. The targets set could be achieved only by giving a massive boost to agriculture and the rural sectors along with incentives for sectors such as food processing, textiles, pharmaceuticals, petrochemicals and telecommunications for creation of more jobs.

Commitment to NCMP

These measures apart, the Minister also harped on the Government's commitment to fulfilling the National Common Minimum Programme (NCMP) objectives by according priority to health, education and other social sector schemes along with the `Bharat Nirman' programme, all of which would require massive investments and necessitate public-private partnership (PPP) projects.

The broad consensus among the corporates was for having a simpler FBT, if the Centre was unable to abolish it totally, and a lower overall corporate tax burden.

"If you don't abolish it [FBT], you can simplify it," the CII President, Y.C. Deveshwar, told newspersons after the meeting. "There is a need to review the existing FBT provisions and simplify it. Genuine business expenditure should be allowed deduction," FICCI Vice-President N. Srinivasan said.

Anil K. Agarwal, Assocham President, asked for the removal of the FBT. The loss in revenue could be made up by increasing the tax rate by two per cent. The CII felt that the FBT proceeds could be best utilised for infrastructure development.

Rational corporate tax

Apart from the 30 per cent corporate tax, companies have to pay 3-4 per cent as dividend distribution tax and another 3-4 per cent as FBT. FICCI, therefore, proposed a cut in corporate tax rate from 30 per cent to 25 per cent as is currently prevailing in most of the ASEAN countries.

The industry representatives also argued for lowering taxes on certain sectors such as food processing, textiles and telecom. "Telecom is a vital sector but has punitive taxation. We wanted lowering of licence fees, ADC and USO charges," said the Bharti Chairman, Sunil Mittal. The CII and the Assocham also made out a strong case for carrying out amendments in the Agriculture Products and Marketing Act, the Essential Commodities Act and Mandi taxes. "We have highlighted that there were huge amount of taxes in food processing. We need to create affordability... ," Mr. Deveshwar said while noting that the APMC Act should be amended to give a choice to farmers to sell products at better price. The chambers representatives also urged restoration of the depreciation rates to 25 per cent.

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