Date:02/03/2005 URL: http://www.thehindubusinessline.com/2005/03/02/stories/2005030203070600.htm

Back Tax on cash withdrawals 'retrograde, unnecessary'

Radhika Menon
Sumeet Kaul

`Why tax on such a small amount as Rs 10,000 as ordinary employees will have to pay the tax when they withdraw their salary'

Mumbai , March 1

MR Chidambaram's largely uninterrupted speech met with one major uproar in the House - the proposal to levy a 0.10 per cent tax on cash withdrawals of over Rs 10,000 from banks in a single day.

The Finance Minister had proposed this levy at the rate of 0.1 per cent as an anti-tax evasion measure. These cash withdrawals left no trail and became part of the black economy, he said.

Small business owners and traders, in particular, were perturbed with the new tax.

"This is the Government's way of making people take recourse to the use of banking channels for all their transactions," said Mr Shreepad M. Korde, Secretary General, Hotels and Restaurants Association (Western India). "Some 80 per cent of people in India do not use banking facilities. This will needlessly add to the work at banks. Politicians themselves will strike this down," he said.

The immediate reaction of most people was that it is an unnecessarily taxing move. "Why tax on such a small amount as Rs 10,000 as ordinary employees will have to pay the tax when they withdraw their salary," said an employee with a private company.

Mr Rajan S. Diwadkar, General Manager, Operations, Kamdar Pvt Ltd, that runs one of the `Archies' outlets in Mumbai said: "This will greatly affect the middle class. Tax on a sum like Rs 40,000 -50,000 might have been reasonable. A number of people earn Rs 10,000 a month and they would want to withdraw the whole amount. Even pensioners might want to withdraw the whole amount of their pension in a single day."

Said Mr Rajnish Shah, Partner, Prashant Caterers, that owns Samrat restaurant in Mumbai: "In a democratic country like India there should be freedom to deposit and withdraw money. Though the Budget is positive, this is one step which goes in the reverse direction."

Mr Sanjeev Sharda, MD, Compusys Pvt Ltd, is concerned about how this will affect his business. "It does not work especially in a case where one has to mobilise delivery quickly and efficiently. If a supplier reduces the delivery deadline from 5 days to 2 days, then I will have to pay cash. Such a measure will then affect me," he said. "I will have to go twice to the bank on two separate days just to withdraw Rs 10,000," he said.