Bring rural rich into tax net to widen base - FICCI

By Our Special Correspondent

NEW DELHI, AUG. 3. The new Chairman of the Central Board of Direct Taxes (CBDT), Mr. O. P. Srivastava, today told industrialists that the new system of tax on perquisites and on employees stock option plan (ESOP) would be rational, liberal and easy to apply.

Addressing a meeting organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here, Mr. Srivastava said in the Indian tax system, the principle of equity warranted that cash and non-cash components should be treated alike. The ideal tax base should include in full the consumption value given in cash and kind, he said.

The CBDT chairman also pointed out that in India, there was a tendency to offer higher perquisites in relation to cash compensation, especially to employees in the higher income bracket. Studies worldwide had also shown that considerable amount of tax was lost due to under-valuation of perquisites, he added.

In his address at the meeting, the Joint Secretary in the Finance Ministry, Mr. G. C. Srivastava, pointed out that in some countries like Canada, New Zealand and Australia, fringe benefit taxes were being levied. This was because of the proper documentation maintained by the employer and in India too, there was an urgent need to take socio-economic objectives into consideration and have an equitable tax system, he added.From among the industrialists, Senior Vice President of FICCI, Mr. R. S. Lodha, said while FICCI had strongly pitched for tax compliance and had urged the Government to take deterrent action against those who violated tax laws, it also felt that instead of penalising existing taxpayers, especially the salaried class, the Government should concentrate on widening the tax net. He also reiterated that the rural rich should be brought into the tax net to broaden the base and increase collections. A large number of commercial operations under agriculture such as horticulture, sericulture, floriculture, orchads, and sandal wood generate substantial cash income which could be tapped, he added.

Mr. Lodha also pointed out that the corporate sector provided various facilities to executives in order to improve their efficiency. The effect of the proposed taxation would be a reduction in the net take-home salary for the middle class and the high income bracket, putting pressure on the companies to raise salaries. With regard to house building loan, Mr. Lodha suggested that in case an employee availed of a loan to build more than one residential property, then the perquisite concept could be applied.

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