Big Bang budgets may not be Finance Minister P. Chidambaram's desire, but they surely are his destiny. From the Minimum Alternative Tax (mat) in his very first budget in 1996, to the dream-nightmare run of his second budget to the uproar over securities transaction tax in the 2004 budget, the minister has always had something out of the ordinary up his sleeves. This time around, it took a few hours for even the experts to get the catch: the fringe benefit tax that had India Inc. and economists confused and confounded. That along with the proposed tax on cash withdrawals raised one fundamental question: how can a man so avowedly wedded to reforms propose something so obviously discretionary and, as Rahul Bajaj, chairman of Bajaj Auto, wondered, dirty? Economist Surjit Bhalla called it "a Stalinist and control freak tax through which government wants to get into everywhere from boardrooms to bedrooms". Economist Bibek Debroy is sure these provisions are "prime candidates for rollback".

PICTURE SPEAK

FROM LEFT: Shankar Acharya Professor, ICRIER Bibek Debroy, Director, RGICS Kiran Karnik, President, NASSCOM Deepak Puri Chairman, Moser Baer C.K. Birla Chairman, Hindustan Motors Surjit Bhalla President, OXUS Research Jagdish Khattar MD, Maruti Aroon Purie Editor-in-chief, India Today P. Chidambaram Finance Minister Onkar Kanwar President, FICCI Prabhu Chawla Editor, India Today Ajit Ranade Chief Economist, AVB Group Subir Gokarn Chief Economist, CRISIL Siddhartha Roy Chief Economist, Tata Group Sunil Mittal Chairman, Bharti Enterprises Indira Rajaraman RBI Professor, NIPFP Rahul Bajaj Chairman, Bajaj Auto Vinayak Chatterjee Chairman, Feedback Ventures

Incidentally, Bajaj, Bhalla and Debroy all give Chidambaram a high 7 to 8 out of 10 on his Budget 2005. This is where the rub lies. Shorn of these two small-but significant for sentiments-proposals, Chidambaram has done everything he could to let the good times roll. And he has done so despite the limitations of the NCMP and a nagging Left. True, he inherited a dream economy, but he has done much to make the dream last. More importantly, he has deepened the reforms by first raising government investment in agriculture and infrastructure and then committing that he is not going to stop at providing money. He has promised measures to ensure that outcomes of government schemes match the outlays for them.

To discuss the good and the not-so-good aspects of the budget, India Today brought the finance minister face to face with its think tank, the Board of India Today Economists (BITE), and chairmen and CEOs of select companies. Excerpts from a two-hour interaction:

Fringe Benefit and Cash Withdrawal Tax
STEALTH BOMBER
Two measures, which threatened to derail the full budget, were criticised heavily by every panelist. Chidambaram hinted at a review, a reduction-and even a rollback.

Rahul Bajaj: When I look at some of the items proposed under the fringe benefit tax, I can't imagine taxing them can be anybody's intention. Employees making calls in office better state which calls are personal and which are official. One can accept that. But I just do not understand how sales promotion and publicity, by any stretch of imagination, can be a perquisite or a fringe benefit. There are many items for which distinguishing personal use from official use will be impossible. I agree fully, Mr Chidambaram, with your emphasis on cleaning up the tax system. But this, as I understand, amounts to dirtying it like mad. On cash withdrawal tax, I know of its success in Brazil. But I presume it is not a revenue raising measure. None of us will worry about paying 0.1 per cent. I have not understood how it can also be a black money reduction measure. Maybe, I have missed the point there. There is enough record for withdrawals from the banks.

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Ajit Ranade: To highlight the difficulties the provisions of the fringe benefit tax may cause let me give an example from our (Aditya Vikram Birla) Group. Almost all our factories are in rural areas. Invariably we run schools and hospitals which are not merely for our employees but for the community at large. More than 50 per cent of the usage of these facilities is by the outside community. That makes it difficult to distinguish what is a perk, what is a fringe benefit. Many other companies must be in a similar boat.

Sunil Mittal: Simplicity has been the mantra for tax proposals and that is very well appreciated. A corporate tax rate of 30 per cent (reduced from 35 per cent) with decelerated rate of depreciation is much better than having an accelerated depreciation and a higher tax rate. I think Rahul also said this. But complying with the fringe benefit tax is going to be very cumbersome. It will cause a lot of stress to the whole system and will make it very subjective.

Subir Gokarn: The fringe benefit tax will create a bias against services. Most of the benefits listed (see box: The Fright on Fringe) are bread and butter inputs for service companies-conferences, travel, telephone calls ... Do we have an estimate of the revenue this tax will generate? That will give some idea of it being streamlined or hopefully even rolled back.

Indira Rajaraman: I wonder why you had reduced corporation tax and enhanced the surcharge simultaneously. This is the kind of untidy thing we used to do long time back.

Deepak Puri: Would the fringe benefit tax apply to the export-oriented industries also? If it does, we will be exporting taxes.

Surjit Bhalla: Why has the principle of keeping taxes simple and clean-adhered to in the case of personal income tax-been sacrificed so blatantly in case of corporation tax?

P. Chidambaram: I do not think the principle has been sacrificed. So far the perquisites attributable to the employee were taxed in the hands of the employee. But there are perquisites that are enjoyed collectively by workers. They can't be attributed to an individual employee, but are still cost to the company. Once you accept the principle that cost to the company must be taxed, then the fringe benefit tax only fills the gap between some perquisites that are taxed in the hands of the employee and some that escape the tax net because they were collectively enjoyed.

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